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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


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,

I.INTRODUCTION Focuses on the need for a practical qualitative impact

M icrofinance provides small loans to poor people who are

deprived of access to credit offered by regular private
assessment protocol (referred to as QUIP). The main aim of
this program is to improve the effectiveness of MFOs by
banks. The cause of this problem, lack of material collateral, strengthening the mechanisms by which they learn about the
has been dealt with through the introduction of “social impact of their services, particularly on poverty. It emphasizes
collateral.” To become eligible, women have first to form a that progress in impact assessment is partially determined not
small group in their village. Members of the small group are only by techniques and skills of data collection and analysis,
required to have weekly savings and are subject to a social but also by the relationships and feedback processes within
mobilization process and receive training. Beneficiaries are in which IA tools are used. Imp-Act sets out to move away from
a position to identify potential income generating activities donor oriented impact assessment and towards practitioner-
which they would be able to pursue. Once a group has focused processes of listening and teach (James Copestake,
demonstrated the ability to save for a period of around six Susen Johnson & Katie Wright June 2002).
months, its members are allowed to borrow funds for income There are a number of challenges facing the Microfinance
generating activities that could be undertaken by an individual sector, the main one being the issue of outreach. “The
beneficiary or by the group itself. Loans are given to microfinance market is now a mature market, but it remains
individuals based on the feasibility of a proposed repayment too limited in scale,” says Stein Sochas. MFIs can only satisfy
schedule, usually the repayment in weekly installments only a fraction of the demand for microfinance services. To reach
with 2% interest rate. But repayment success rate has never new clients, it is crucial for the industry to lower transaction
dropped below 99% percent. 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
Micro finance had enjoyed a wealth of literature in the past,
sector money.
and now is quite often seen as one of the most significant tools
developed to combat poverty at the grassroots level. From this Weekly meetings with the self-help group members are one
paper focuses on several literature surveys to address similar way to reduce women’s stress. They can have time to discuss
issues faced by the women in formal micro finance sector. their problems regarding the household and the business.

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

the most relevant findings from studies of the impact of in this program to improve their health, education and build up

microcredit institutions like the Grameen Bank and BRAC in stronger economies. By providing access to financial services

Bangladesh. It focuses on the barriers to reaching the poorest – they are eligible to receive loans and responsible for

women in society. Focusing on client-related barriers, self- repayment and maintaining savings accounts. Past studies in

selection or self-exclusion is regarded as one of the major other countries show that women become more assertive and

obstacles. They discussed the positive and negative confident, have increased mobility, are more visible in their

evaluations in the impact of micro finance. communities and play stronger roles in decision making.

Concerning women’s empowerment, there are visible


III.SIGNIFICANCE OF THE STUDY challenges rural women facing (financial, marketing,

This research paper contemplates on problems and challenges production and infrastructure and loan).
associated with microfinance loan schemes currently in use There is another variable called Empowerment, which
with the Mahaweli System C – Girandurukotte block in rural develops within women when women gain it from their
sector of Sri Lanka, by giving special reference to women experience of living.
involved activities and focusing on how they utilize loans for
their household, income generation activities and their V.FINDINGS

savings. The relationship between characteristics of rural • The Mahaweli Authority starts a poverty alleviation

women and the success of loan utilization is also discussed. paradigm for lifting up poor women from their

This paper mainly focuses on whether these microcredit vulnerability. They have introduced the concept of

programs really contribute to alleviate poverty in rural women self-help groups to alleviate poverty by providing

to gain a better livelihood. To measure the impact before and small loans. The Mahaweli Authority provides the

after joining this microcredit scheme, it is necessary to guidelines to start this paradigm. From that, women

identify variables which are related to the objectives. Lately learnt how to access credit, request loans, and

the role of financial services in the struggle against poverty motivate to start their own business to contribute to

has been given increased attention given the informal family income.

economy where the majority of poor women operate. This • Because of loan utilization, women find solutions for

study will help for in depth analyze of impact of microfinance their credit accessibility, savings, food, consumption
in this area, who could not benefited from this paradigm. and health. According to the statistics can say that the
usage level of loan utilization is very high.

• By following the savings pattern, children also
In this research, it is expected to analyze the impact of motivated to save money. They can observe and
Microfinance activities, using Multimethods and from teach from their parents, to save non cash or cash for
multiple sources, which lend rigor to research in household future purposes.
level groups.
Sample Size • Most of the people in Hobariyawa village have joined
The target group is women in Girandurukotte block, Hebarawa to more than one community based organizations.
Unit – Hobariyawa village, who are in below poverty line and And they are requesting loans from SHG/financial
marginally on poverty line. This Unit has twenty four small society and other organizations as well.
groups and targeted randomly from twelve groups, one woman
from one small group for this survey. Out of those 24 groups, • In the observation study, women said that in harvest
this study selected 40 women from 12 groups. They should be time period they earned more income than other
registered beneficiaries to “Mahaweli Swashakthi Women months in the year. They always purchase important
Bank Society” which conducted by the Mahaweli Authority of household assets from their harvesting time. Then in
Sri Lanka. non harvesting time period they sell their household
assets to recover from shocks.
Conceptual Framework
Conceptual framework explaining, independent and dependent VI.RECOMMENDATIONS

variables which selected for this study. As independent

variables income, education, consumption, land, savings, and • Conducting general awareness programs.

decision making and as dependent variables problems and • Capacity building training programs.

• 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


[1] United Nations Capital Development Fund (2005)

International Year of Microcredit 2005. [Online] available
from <>

[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 <>
[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.