The Sri Lankan financial market is essentially a micro-finance market with more than 80% of households having total borrowings below Rs 100,000, a survey commissioned by GTZ (German Technical Cooperation) on an initiative of the Ministry of Finance, shows.
The survey was conducted to find out the outreach of financial services in Sri Lanka with special attention on micro-finance.
Outreach of the institutions seem to be high with 82.5% of households having accessed financial institutions for their savings and credit needs and 75% of households have savings in financial institutions but the estate sector lags behind on both counts. Out of this, 82% of the savings accounts earn below 10% interest per annum and the high inflation means savers earn negative returns on their accounts, according to the survey.
Preferred among the financial institutions is state banks with over three fourths of the households saving in them and accessibility along with reliability and safety are key factors in choosing them. Samurdhi banks are more popular with the lower income groups with 50% using them for credit and 38% for savings.
Informal credit is used by around 20% of the households because of their easy accessibility, speedy fund release and absence of collateral requirements, the survey noted.
Some 50% of households, according to the survey, claim to be in need of a loan indicating an unmet demand for financial services, especially credit. Households face collateral requirements, excessive documentation and rigid terms and conditions as some of the main barriers when obtaining credit while long transaction times, low interest rates and excessive documentation get in the way of savings.
The survey points to a mismatch between supply and demand with complaints from the customers pointing at high transaction costs and lack of flexibility on the part of the providers.
It suggests that regulating and supervising microfinance providers would go a long way in improving public and investor confidence in the institutions. It also notes that even though the financial market in the country is mostly a micro-finance market, poverty alleviation efforts have been modest.
The study also points to a relatively low utilization of insurance services and notes that increasing outreach of insurance services is important especially in low income families where sudden sickness and death can result in poverty. Greater acceptance of insurance services, however, is needed before micro-finance insurance. (LP)