Jul 22 2016

Sri Lanka has a significant low-income population segment whose financial needs are served by an estimated 14,000 financial institutions in the country, which directly or indirectly provide microcredit products. However, a majority of these financial institutions are either financial NGOs, not-for-profits or organizations that follow a local cooperative structure. For-profit formal sector microfinance institutions are few, and the market is dominated by five or six players that serve the majority of the low-income customer segment. There is limited industry research on the country’s microfinance sector, and Intellecap has attempted to bridge this gap by presenting the following market opportunities and growth strategies, based on conversations with leading practitioners, policy makers and capital providers immersed in the Sri Lankan market.

STRATEGIES FOR MARKET GROWTH IN SRI LANKA

Among South Asian countries, Sri Lanka is unique in terms of population distribution by income, with a majority of its households in the low-income and middle-income segments rather than the lowest (or poorest) segment (Figure 1). As per our assessment, the country’s 2.6 million low-income households (which we’ve termed the aspirers) represent the target customer segment for MFIs in Sri Lanka. While market penetration data for the existing microfinance institutions (MFIs) and non-bank financial companies (NBFCs) in Sri Lanka is not readily available, based on Intellecap’s analysis, the total number of customers served by the five largest MFIs/NBFCs is estimated to be around 1.3 million customers. Meanwhile, the Lanka Microfinance Practitioners’ Association estimates the total number of customers served by 24 smaller MFIs in the country to be nearly 0.7 million.