Innovation vital for micro-finance

Anuradha Kodagoda

Micro-finance is a well-established industry in the South Asian region and it is also one of the booming industries in Sri Lanka. However, to sustain in the micro-finance market, Sri Lanka has to improve the external and internal governing practices as well as the Government's regulatory practices, Honorary Senior Fellow, University of Manchester, Dr. Thankam Arun told a seminar on Micro-finance Services in Sri Lanka, organized by the Central Bank.

"Today micro-finance has developed as a highly competitive industry and to sustain in the market innovation is essential. Implementing many products to the market may help to reduce the cost of services," he said.

"One of the key areas that Sri Lanka is lacking in the micro-finance industry is skilled human resources. It needs the skills of understanding the financial literacy and the financial diversity of the market. To improve the financial literacy skills it is essential to organize regular seminar programs, workshops and training programs for employees in the industry," he said. "Globally the minimum investment in the micro-finance sector is US $ 25 billion.

It is vital to find a source to attract private capital to the industry. Hence, micro-finance institutes should strengthen the financial framework systematically,"

"In the near future Sri Lanka will identify the need of micro-finance for the rehabilitation programs in the Northern and Eastern provinces. Sri Lanka can foresee much expansion in the micro-finance industry in these areas," he said.

"Due to the limited resources, most poor people experience great financial hardships, when there are unexpected events - both man-made and natural. Such adverse events have a significant effect on the income of the poor and their consumption, which makes it hard for them to recover from those shocks and makes them the most vulnerable group. Hence, poor people require a greater level of support ahead of unforeseen risks.

Therefore, the poverty reduction strategies should essentially look beyond the generation of income to include measures to protect the income of the poor through effective risk management," said the Deputy Governor, Central Bank of Sri Lanka, W.A. Wijewardena.

"The widespread existence of spurious micro-finance institutions in the society projects the entire micro-finance industry as a fraudulent activity in the eyes of the public and law enforcement authorities. This is not a healthy sign for the future of the micro-finance industry at all," he said.