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| Tuesday, 02 November 2004 |
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Need for thorough study into microfinance schemes highlighted by Channa Kasturisinghe There have been several self-employment and small enterprise development schemes introduced to the rural communities in the recent past as a means of poverty alleviation. However, the effectiveness of these schemes is still doubtful. The need to conduct a thorough study of these schemes has been highlighted by many experts in various fora. Microfinance in its strict sense was not evident in Sri Lanka until 1986 when the government initiated the Janasaviya program as the major instrument of poverty alleviation strategy. In 1996, the government launched the Samurdhi Development and Credit Scheme to promote income generating self-employment opportunities among Samurdhi beneficiaries. Unless there is an indepth study into the effectiveness of these activities the money and resources put into this effort would be rendered fruitless. In this light the Impact Assessment Survey of Microfinance conducted by the Department of Social Studies of the Open University of Sri Lanka in collaboration with the University of Lund, Sweden is a commendable effort. This three-year project (2003-05) is sponsored by the Swedish International Development Agency (SIDA) under the Swedish Asia Research Partnership. According to Prof. S. S. Colombage of the Open University of Sri Lanka, the current studies on microfinance pertaining to Sri Lanka do not adequately address the question, what microfinance programs can and cannot achieve. Delivering the twenty-third anniversary lecture of the Centre for Banking Studies of the Central Bank of Sri Lanka recently, Prof. Colombage said most studies without applying any scientific tests, merely accept the hypothesis that microfinance does have positive socio-economic effects. "A major objective of our study is to fill this lacuna. By applying the relevant statistical techniques, various hypotheses on the nexus between micro credit and different socio-economic variables are tested in this analysis. We have adopted a broader approach in our study taking into account a multitude of factors affecting the performance of microfinance clients and small enterprises," Prof. Colombage said. A major focus of this study had been to analyse the causal relationship between microfinance facilities and the small enterprises. As an initial step of this study, a sample survey was conducted in Hambantota and Moneragala districts. The main survey instrument used in this survey was a structured questionnaire focusing on socio-economic effects of microfinance. Prof. Colombage said that this survey will be extended to several other districts including Anuradhapura and Nuwara Eliya. "We also intend to conduct a qualitative survey on client empowerment. It will focus on women clients through indepth interviews to determine if and how women have been empowered by their participation in the programs," he said. The sample survey conducted in the Hambantota and Moneragala Districts was expected to cover about 400 clients. This number was allocated between the two districts in proportion to the total population of each of them. The survey focused mainly on demographic and socio-economic features of households - impact of microfinance on enterprises, households and communities - client satisfaction and feedback - positive effects of microfinance - constraints faced by micro enterprises - competitiveness and business environment. According to the survey women play a major role in microfinance activities, particularly in the Hambantota District where women accounted for two-thirds of the total number of clients. About 93 percent of the sampled households of clients receive an income of less than one dollar a day per person. Around 82 percent of them spend less than the Minimum Required Adult Equivalent Food Expenditure of Rs. 1,338.48 per adult. It has been found that 80-90 percent of the houeholds of clients assisted by MFIs are living below the poverty line in the two districts. It was also revealed that a little over 40 percent of the clients and 30 percent of non-clients gained profits from their enterprises. "The microfinance activities should ultimately lead to uplift the living conditions of the community as a whole mainly through employment creation. In this regard the performance is not satisfactory, because the micro enterprise have not created much employment opportunities," Prof. Colombage said. He also said that although MFIs provide a multitude of services, the small enterprises do not seem to have grown sufficiently owing to various mediating and external factors. Microfinance provides small-scale financial products including credit, savings and insurance services to poor people who are usually excluded from formal financial institutions. Some of the key characteristics of microfinance are easy access for poor people, group-based lending, less or no collateral requirements and reasonable interest rates. Such credit enables poor people to engage in their own small enterprises, and thereby to raise their income and to accumulate assets. Microfinance institutions also provide a variety of enterprise services such as skills development training, advisory and counselling services, technical advice and market guidance. Hence, microfinance is said to be based on a `credit plus' approach. While replacing the traditional state sponsored credit schemes that became a failure, microfinance is expected to play a vital role in meeting a variety of credit, savings and risk-management needs of small entrepreneurs. However, it will be essential for the policy makers in future to consider the findings of such surveys seriously and adopt various remedial measures to ensure that the funds available for poverty alleviation schemes are effectively utilised. |
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