Country-Level Effectiveness and Accountability Review (CLEAR): Sri Lanka

Analysis of Sri Lanka's microfinance sector and recommendations for donor action

Much-needed donor funds poured into Sri Lanka following the tsunami. Yet, managing this money well and with a long-term sustainable perspective has proved difficult.The latest CGAP CLEAR report takes a close look at the effectiveness of funding agencies (public and private) in the difficult post-tsunami Sri Lankan environment. Based on interviews with over 200 people in Sri Lanka, including microfinance managers, government officials, and aid agency representatives, the report:

  • Provides a snapshot of the Sri Lankan financial sector.
  • Analyzes funders' contribution - both positive and negative - to the three levels (micro, meso, and macro) of the financial system.
  • Suggests recommendations for funders to more effectively expand Sri Lankans' access to financial services.

More than 30 international agencies support microfinance in Sri Lanka, with total budgets of about US$ 200 million for 1999 - 2005. Yet this money has not been spent in the most effective way. Funding agencies in Sri Lanka face many effectiveness challenges:

  • Few aid agencies have staff in country with microfinance expertise and thus have little capacity to design and monitor projects appropriately.
  • There is excessive funding available for capital funds and insufficient funds for capacity building. Yet, microfinance providers need to strengthen their systems to be able to absorb capital funds well and scale up.
  • Many funders confuse social transfers with financial services; this confuses clients and can seriously hamper microfinance providers' long-term viability.
  • Too many aid agencies continue to fund poorly performing credit components that are not sustainable and will not contribute to poor people's long-term access to financial services.
  • Most aid agencies do not have or use proper monitoring and evaluation tools; they know little about the performance - and impact - of their programs.
  • Funders often channel their funds through government entities that are not best suited for financial service delivery.
  • Despite recent efforts, donor initiatives remain scattered, and there is little operational coordination.

See the full report for detailed findings and recommendations for how donors can address gaps in the financial system more effectively.[Author's abstract]

About this Publication

By Duflos, E., Ledgerwood, J., Helms, B. & Moyart, M.