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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

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,

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
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.
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 practitioner-
focused 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.

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)
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, self-
selection or self-exclusion is regarded as one of the major
obstacles. They discussed the positive and negative
evaluations in the impact of micro finance.
Concerning women’s empowerment, there are visible
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characteristics in women who participated to small groups.
Characteristics of an “Empowered” Woman
• 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
Indicated by (Madhuri Narayanan 2005).
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.
Mahaweli Authority
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
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.

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.
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
variables income, education, consumption, land, savings, and
decision making and as dependent variables problems and
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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.
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.
• By following the savings pattern, children also
motivated to save money. They can observe and
teach from their parents, to save non cash or cash for
future purposes.
• 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.
• 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.
VI.RECOMMENDATIONS
• Conducting general awareness programs.
• Capacity building training programs.
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• 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.