Impact of Microfinance Loans in SME Sector in Sri Lanka. With Special Reference to the Women Involved Enterprises
Ms. Thilakarathna D.J
Sri Lanka Institute of Information Technology, Colombo , Sri Lanka Abstract Developed and developing countries are facing to a common problem to alleviate poverty from non collateral women who are in rural areas. Poverty is not only on a steady increase but also wide spread in rural areas. In the quest for solutions to the country’s development challenge and poverty alleviation, microfinance is becoming one of the most popular options as credit has been identified as a barrier facing the poor. Microfinance is poverty alleviation tool which replicating most of the countries in the world. It provides the access to financial services to people specially women who are below the poverty line of the country. In Sri Lanka Microfinance Institutes provide more support to rural women, who have limited controls and power in business and household decision making.
Key Words: Decision making, Empowerment, Impact, Poverty,


Focuses on the need for a practical qualitative impact assessment protocol (referred to as QUIP). The main aim of this program is to improve the effectiveness of MFOs by strengthening the mechanisms by which they learn about the impact of their services, particularly on poverty. It emphasizes that progress in impact assessment is partially determined not only by techniques and skills of data collection and analysis, but also by the relationships and feedback processes within which IA tools are used. Imp-Act sets out to move away from donor oriented impact assessment and towards practitionerfocused processes of listening and teach (James Copestake, Susen Johnson & Katie Wright June 2002). There are a number of challenges facing the Microfinance sector, the main one being the issue of outreach. “The microfinance market is now a mature market, but it remains too limited in scale,” says Stein Sochas. MFIs can only satisfy a fraction of the demand for microfinance services. To reach new clients, it is crucial for the industry to lower transaction costs. Fernando says, adding, “Some commercial banks still have doubts about the sustainability of microfinance”. Donors must, therefore, leverage their funds to bring in more private sector money. Weekly meetings with the self-help group members are one way to reduce women’s stress. They can have time to discuss their problems regarding the household and the business.


icrofinance provides small loans to poor people who are deprived of access to credit offered by regular private

banks. The cause of this problem, lack of material collateral, has been dealt with through the introduction of “social collateral.” To become eligible, women have first to form a small group in their village. Members of the small group are required to have weekly savings and are subject to a social mobilization process and receive training. Beneficiaries are in a position to identify potential income generating activities which they would be able to pursue. Once a group has demonstrated the ability to save for a period of around six months, its members are allowed to borrow funds for income generating activities that could be undertaken by an individual beneficiary or by the group itself. Loans are given to individuals based on the feasibility of a proposed repayment schedule, usually the repayment in weekly installments only with 2% interest rate. But repayment success rate has never dropped below 99% percent. II.LITERATURE REVIEW Micro finance had enjoyed a wealth of literature in the past, and now is quite often seen as one of the most significant tools developed to combat poverty at the grassroots level. From this paper focuses on several literature surveys to address similar issues faced by the women in formal micro finance sector.

2 These group meetings can help them to learn to talk in public, literacy programs can build up their knowledge, enhance social relations, and find room to express their ideas to others. They even get the chance to take up leadership in their group or the center where meetings take place. (Bhatt and Tang 2001a) go on to discuss group lending under the frameworks of incomplete information theory and transactions cost theory. Based on their analysis, they offer recommendations for setting-up and managing an MFI. Long-term membership to microfinance institutes will impact to business, household and decision making ability. Most of the time an initial loan which taken by women is spent for personal needs. As mentioned above, if they walk with the micro finance organization they can survive crucial poverty impacts. Improved access to microfinance will contribute to business expansion resulting in more fixed assets, larger inventory, higher revenue, higher employment, lower cost of funds, and higher profitability. Low capacity is another impediment to further development of the sector. “Trained manpower is not available, hence we had to develop an extensive training program,” Transferring knowledge to the micro levels are a key task for donors, but not all efforts is successful. These new recruits will in turn make the sector more professional, and help to further develop micro finance into a sustainable and profitable sector with increased outreach to a full range of financial services. 2005 might be too early to claim victory, but there is little doubt that in the future, micro finance will contribute to “strong and flourishing local economies”. (Emmanuelle Collet) Under the Mahaweli Authority Development Projects, the Microfinance program targets poor women in rural Sri Lanka, because they are proven to be reliable for credit risks. The Project covers almost one third of the dry zone in the country. They have divided the dry zone into seven systems in Sri Lanka. Nearly 130,000 families have been settled in these Mahaweli areas and they have been provided with lands, irrigation and other necessary infrastructure facilities that are being provided for economic development. They also conduct micro credit programs by targeting poor women in the Mahaweli systems to build up their lives. They have to target This is a comparative overview (Patrick Develtere 2005) of the most relevant findings from studies of the impact of microcredit institutions like the Grameen Bank and BRAC in Bangladesh. It focuses on the barriers to reaching the poorest women in society. Focusing on client-related barriers, selfselection or self-exclusion is regarded as one of the major obstacles. Concerning They discussed the positive there and are negative visible evaluations in the impact of micro finance. women’s empowerment, poor people in these areas and encourage them to participate in this program to improve their health, education and build up stronger economies. By providing access to financial services – they are eligible to receive loans and responsible for repayment and maintaining savings accounts. Past studies in other countries show that women become more assertive and confident, have increased mobility, are more visible in their communities and play stronger roles in decision making. Mahaweli Authority Dimensions of poverty in Sri Lanka Sri Lanka is a third world country and categorizing as a developing country. Sri Lanka is an agriculture based country and most of the areas suffering from poverty. And poverty among women is high in Sri Lanka. Indicated by (Madhuri Narayanan 2005). • • • • • • Who can lead a group of women effectively Who is having unrestricted mobility Who can take up any activity of her liking Who can work and earn money for the welfare of the family Bold and able to face any situation Can manage their family affairs effectively characteristics in women who participated to small groups. Characteristics of an “Empowered” Woman

3 III.SIGNIFICANCE OF THE STUDY This research paper contemplates on problems and challenges associated with microfinance loan schemes currently in use with the Mahaweli System C – Girandurukotte block in rural sector of Sri Lanka, by giving special reference to women involved activities and focusing on how they utilize loans for their household, income generation activities and their savings. The relationship between characteristics of rural women and the success of loan utilization is also discussed. This paper mainly focuses on whether these microcredit programs really contribute to alleviate poverty in rural women to gain a better livelihood. To measure the impact before and after joining this microcredit scheme, it is necessary to identify variables which are related to the objectives. Lately the role of financial services in the struggle against poverty has been given increased attention given the informal economy where the majority of poor women operate. This study will help for in depth analyze of impact of microfinance in this area, who could not benefited from this paradigm. • • V.FINDINGS The Mahaweli Authority starts a poverty alleviation paradigm for lifting up poor women from their vulnerability. They have introduced the concept of self-help groups to alleviate poverty by providing small loans. The Mahaweli Authority provides the guidelines to start this paradigm. From that, women learnt how to access credit, request loans, and motivate to start their own business to contribute to family income. Because of loan utilization, women find solutions for their credit accessibility, savings, food, consumption and health. According to the statistics can say that the usage level of loan utilization is very high. IV.METHODOLOGY In this research, it is expected to analyze the impact of Microfinance activities, using Multimethods and from multiple sources, which lend rigor to research in household level groups. Sample Size The target group is women in Girandurukotte block, Hebarawa Unit – Hobariyawa village, who are in below poverty line and marginally on poverty line. This Unit has twenty four small groups and targeted randomly from twelve groups, one woman from one small group for this survey. Out of those 24 groups, this study selected 40 women from 12 groups. They should be registered beneficiaries to “Mahaweli Swashakthi Women Bank Society” which conducted by the Mahaweli Authority of Sri Lanka. Conceptual Framework Conceptual framework explaining, independent and dependent variables which selected for this study. As independent • • Conducting general awareness programs. Capacity building training programs. variables income, education, consumption, land, savings, and decision making and as dependent variables problems and VI.RECOMMENDATIONS • In the observation study, women said that in harvest time period they earned more income than other months in the year. They always purchase important household assets from their harvesting time. Then in non harvesting time period they sell their household assets to recover from shocks. • Most of the people in Hobariyawa village have joined to more than one community based organizations. And they are requesting loans from SHG/financial society and other organizations as well. • By following the savings pattern, children also motivated to save money. future purposes. They can observe and teach from their parents, to save non cash or cash for challenges rural women facing (financial, marketing,

production and infrastructure and loan). There is another variable called Empowerment, which develops within women when women gain it from their experience of living.

4 • • Management training programs Conducting media programs to give publicity and aware about this poverty alleviation program to national and international • It is recommended to limit the loan request from one organization. REFERENCES [1] United Nations Capital Development Fund (2005) International Year of Microcredit 2005. [Online] available from <http://www.yearofmicrocredit.org> [2] James Copestake, Susan Johnson & Katie Wright (June 2002) Improving the Impact of Microfinance on Poverty Action Research Program. University of Bath. [3]Emmanuelle Collet. Microfinance Macro Impact writes. [Online] available from <http://www.adrmagazine.com> [March 2008] [4] Patrick Develtere and an Huybrechts (2005) The Impact of Microcredit on the Poor in Bangladesh. (Alternatives 30 (2005), 165–189) [5] Madhuri Narayanan (2005) Strategic Impact Inquiry on Women’s Empowerment Field Research Component India. [6] Department of Census and Statistics – Sri Lanka (2008 August 29th) Poverty Indicators.

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