Investing in Rural Sri Lanka

> Posted by Michiel Sallaets, Communications Manager, Incofin Investment Management

To continue Sri Lanka’s development in its post-war, post-tsunami era, it’s essential that greater investments be made in the country’s agriculture sector and in its financial services for the base of the pyramid.

In Sri Lanka, about 80 percent of the population lives in rural areas. Agriculture is the main source of income for these people and many of them work at the smallholder level. Loans are necessary for farmers to adequately invest in seeds, fertilizers, tools, and other productive inputs. Loans can also prove instrumental in compensating for the occasional inadequate harvest. Yet, the proportion of people who have taken out loans in Sri Lanka in the past year is a dismal 9 percent. Only 22 percent of the population in the past year has saved in a financial institution.

In order to change this financial inclusion plight of Sri Lanka, fund advisor Incofin Investment Management (IM) has made its first investment in Sri Lanka’s evolving microfinance landscape. A few weeks ago the company loaned US$750,000 through our Rural Impulse Fund (RIF) to the Bimputh Finance non-bank financial institution to expand its microfinance operations and advance financial inclusion .

Bimputh Finance started its greenfield operations in 2007 and as of today it’s comprised of 25 branches offering financial services to a customer base of nearly 68,000, mainly micro, small, and medium entrepreneurs. The Incofin IM loan will be used to increase Bimputh’s services to more lower-income families/entrepreneurs and to introduce new products including micro-housing and micro-savings. Of the investment, Daya Gamage, Chairman of Bimputh Finance, said, “Going forward we aim to become one of the leading microfinance institutions in Sri Lanka, providing our clients with facilities at the lowest interest rates possible in order to promote and nurture their enterprises. Incofin IM’s value addition to our business comes not just from financing our expansion plans but also from their technical knowledge, guidance, and transfer of best practices.”

According to the MIX Market, Sri Lanka’s microfinance lending is comprised of about $730 million in loans and roughly a half million borrowers. In savings, the industry has about $680 million in deposits spread across approximately 670,000 depositors. For comparison, Chile, a country with slightly fewer people, houses a microfinance market with about $2.2 billion in loans and roughly 960,000 people who are saving.

Greater access to and use of financial services in Sri Lanka will support the resilience and poverty reduction progress the country has demonstrated in recent years. Since 2002, the number of people living with poverty decreased from 23 percent to 7 percent. The World Bank’s development recommendations for Sri Lanka affirm the move by Incofin to expand rural microfinance in the country. The World Bank points to promoting agriculture-based livelihoods and increasing foreign direct investments to continue Sri Lanka’s positive economic growth. This in turn will also lead to lifting those who remain in poverty into healthy financial footing and those who are vulnerable into increased stability.

For more on Incofin’s work to expand social well-being by supporting rural microfinance, click here.

Image credit: Denish C

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