7.

Bridging The
Programme Insights
Gap
Building a financial services
system that serves poor
people in Sri Lanka

Members of a women-managed market garden producers organization

meet monthly with a bank loan officer in Inthupuram, northern Sri
Lanka.
Gayathri Jayadevan/Oxfam

Providing financial services for poor people in Sri Lanka in

partnership with financial institutions, donors, service providers, and
policy-makers, Oxfam GB is helping to build democratic, inclusive
financial systems in Sri Lanka that serve the majority poor people.
Oxfams indirect, facilitative approach aims to cultivate links between
the formal financial services sector and people living in poverty. Poor
farmers have taken advantage of affordable credit to start or expand
businesses, improving their incomes and helping to lift their families
out of poverty. Savings and insurance schemes now give them a
cushion against hard times. In particular, opportunities for self-
employment have increased the security of women and their status in
the community.
Introduction: the financial services sector
In its programmes in Sri Lanka, Oxfam has targeted marginalized
communities affected by conflict and natural disasters, especially the
2004 tsunami. Typically, members of these communities are engaged
in low-income activities in agricultural value chains, such as small-
scale farming and casual labour. Most small-scale farmers have few
or no assets and depend for their livelihoods on subsistence farming,
cultivating plots of less than five acres. In particular, Oxfam has
worked to facilitate links between the formal financial services sector
and people living in poverty, with the aim of strengthening the
access of poor communities to a broader world of financial systems,
markets, and development.
Over the past 20 years, increasing deregulation of the Sri Lankan
economy has led to rapid growth in the financial services sector.
Realizing the potential of financial services as an instrument to
reduce poverty, the government has streamlined the process for
private sector financial institutions to obtain licences to operate, thus
increasing competition. Todays financial sector is diverse, with
member-based financial institutions such as Cooperative Rural
Banks, Samurdhi Bank Societies, and Thrift and Credit Cooperative
Societies reaching a large number of clients, with the private sector
playing a key role in the provision of services (ADB).1
However, by international standards the sector operates at a very low
level. First, the lack of a national sector policy on micro-finance and
the absence of a cohesive regulatory and supervisory structure mean
that the performance of micro-finance programmes is poor.
Second, despite the relative maturity of the financial services market,
Sri Lanka suffers from a regional bias, with service providers
concentrated in Western and Southern provinces while Northern and
Eastern provinces are hardly financed at all. In addition, many
financial products are of poor quality not client-driven or cost-
effective, and poorly targeted. These problems are serious constraints
on the sustainability of the financial services on offer and their
accessibility for poor and marginalized communities. Some 60 per
cent of the countrys population remain unbanked (World Bank).2
Issues such as lack of collateral, weak legal systems, and a risk-averse
attitude to enterprise culture create a greater dependency on the
expensive informal financial sector.3 Women in particular face
difficulties, as they may not have the time, skills, mobility, or assets
to meet the requirements of financial services providers. If married,
they may not have control over financial services in their own name.

1 7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011

The new three-tier strategy
Improving access to affordable and sustainable financial services has
always been a critical element of Oxfam GBs poverty alleviation
strategy in Sri Lanka. From the late 1980s up until 2005, Oxfam
implemented micro-credit programmes through NGO partners. In
2005, however, this approach was reviewed and it was realised that
the model was very expensive in terms of NGO and donor resources,
and ultimately unsustainable. There were a number of key reasons
for this:
Oxfams relatively small capital base meant that the loans were
small and limited in geographical coverage.
Financial services work was not directly linked to a specific value
chain, so borrowers took loans that were not subsequently
invested in viable livelihoods activities. Oxfam was not able to
provide technical support for all the activities.
Oxfams service delivery approach meant that it was viewed as a
community benefactor; this encouraged a dependency mentality
and a feeling amongst communities that they did not need to
repay the loans.
The approach had not responded to the changing context and in
some cases involved significantly higher interest rates compared
with subsidized credit channelled through the formal sector.
Oxfams position, experience, and focus did not enable it to
influence the regulatory framework, even though this was a key
reason for the poor performance of micro-credit programmes.
Oxfam also wanted to get away from the idea of segregating the
financial needs of poor people and instead work to include them in
mainstream financial services. It therefore ceased providing capital
for finance, and instead moved to facilitate linkages between poor
people, their producer organizations in local value chains, and formal
or semi-formal finance providers. Oxfams new role was to act as a
broker, forging partnerships between different stakeholders in the
formal and semi-formal financial sector: policy-makers and
regulators, private sector financial institutions, civil society
organizations, and promoters of financial services.
The programme it developed works on a multi-pronged approach, at
national policy, institutional, and community levels, and four linkage
models have been piloted in communities. These have engaged all
types of financial institution in market-based lending, including
commercial financial institutions (international and national banks)
and formal micro-finance institutions (MFIs).

7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011 2

Oxfam GBs three strategic aims in the financial services sector
Level of impact Aim Target
Tier I Facilitate an enabling environment for the Policy
development of sustainable and
Regulation
National responsible financial services in Sri Lanka
policy Legislation
Supervision
Donors
Tier II Encourage providers of financial services to Commercial banks
adopt market-based approaches and invest
Non-bank financial
in quality support services that integrate
Financial institutions
poor women and men into the formal
services
financial sector in successful ways Co-operatives and
providers
credit unions
Finance companies
NGO MFIs
Tier III Build governance capacities of producer Smallholders/workers
organizations, particularly those managed MSMEs
Individuals/ by women, to access financial services Self-help groups
producer from the formal sector on fair and equitable Farmers societies
groups terms and to help give them a more Co-operatives
organized voice on livelihoods issues Womens rural
development societies

In developing this strategy, Oxfam undertook socio-economic

analysis to identify the poorest people and their credit needs.
Community mobilization helped target the poorest for support and
organized producers into groups in order to develop their skills in
improved production methods, value addition, and business
management. Advisory services and business counselling were
provided. Oxfam then carried out a baseline survey to assess overall
credit needs by sector and district, and a profitability analysis for
each sector to establish the maximum affordable interest rates for
enterprises in their first year.
Having identified viable financial services institutions, Oxfam then
presented its findings and business plans. It entered into dialogue
with a range of different institutions, including government-owned
institutions, private for-profit institutions, and private non-profit
organizations. Other stakeholders with whom it collaborated
included government bodies both at national level (Ministry of
Finance, Central Bank of Sri Lanka, Insurance Board of Sri Lanka,
Agriculture and Agrarian Insurance Board, Ministry of Agriculture)
and district level (District Secretariats, Department of Agriculture
and Agrarian Services, Divisional Secretariats). In civil society it
entered into dialogue with NGO micro-finance institutions, and in
the private sector with the Bankers Association, Federation of
Chambers of Commerce and Industry in Sri Lanka, and the Institute

3 7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011

of Bankers of Sri Lanka. Bilateral donor engagement included the
Asian Development Bank (ADB) and the World Bank, via the Central
Bank of Sri Lanka.

How the linkage models work

A range of financial services linkage models have been promoted to
support the growth and expansion of the dairy, paddy, market
garden, and coir value chains in Sri Lanka. To date, more than 100
producer organizations have been involved in this initiative, mainly
womens rural development societies, paddy farmers societies, dairy
co-operatives, and community-based organizations registered under
the Department of Agriculture, District Secretariats, or the
Department of Cooperative Development.
Linkage model 1: Bank provides finances, producer organization
provides support
During Oxfams negotiations with banks, profitability analysis
highlighted the fact that linking clients directly to banks was a more
efficient and cost-effective way for members of producer
organizations to receive loans than delivering them via NGOs or
MFIs. In this model, clients receive loans directly from banks, and
producer organizations provide training, technical support, and
monitoring. The producer organizations receive an administration
fee from banks for monitoring work, which provides them with
income. Such monitoring involves the banks working with the
producer organizations to build rapport with clients and to follow up
on repayments to reduce the risk of default. A joint monitoring and
recovery system reduces costs and the risk of defaults, as producer
organizations are able to pressure their members on repayment if
necessary. Decision-making on loans is based entirely on business
feasibility and financial sustainability, a factor that has contributed to
100 per cent repayment and has created interest among the banks to
replicate the model in other districts. Currently, the model is being
used in Hambantota (market garden value chain), Trincomalee
(market garden value chain), and Batticaloa (paddy value chain).
Linkage model 2: Loans procured and disbursed by a producer
organization
The delivery of credit through wholesale loans was selected as the
appropriate entry point, because of producer organizations
institutional capacity and their legal entitlement to deliver cost-
effective financial services. In this model, producer organizations
receive wholesale loans from a number of different financial service
providers and pool them into a common fund; they then provide
smaller loans to members, with an administration fee (which
provides income for the producer organizations) added to the
interest rate. The business development services provided by
producer organizations further support members in terms of

7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011 4

financial and business management. These services include training
on business planning, financial management, marketing and
business counselling by technical experts. They also facilitate access
to market information through collaboration with the Chamber of
Commerce. This model is being used in Vavuniya (dairy value
chain).
Linkage model 3: Banks provide both finance and training
Finance is provided through donor funding, so interest rates are
subsidized and there is a stronger focus on community
empowerment and poverty reduction. In this model, clients are
linked directly to banks, which also provide business support and
training. Communities are empowered to deal with banks directly
and to negotiate terms. Ruhunu Development Bank and Sanasa
Development Bank practise this model in the coir sector in Southern
Province, with funding support from Central Bank of Sri Lanka.
Linkage model 4 (currently in negotiation): Banks gain outreach by
linking with MFIs
This model focuses on partnerships between international banks and
MFIs to provide greater access to end-users living in (ex-)conflict
areas or in the remotest parts of the country. The model links large
funds from international banks with well-established grassroots
systems and the skills of local MFIs to accommodate small-value
micro-credit transactions.

Box 1. Timely support for village entrepreneur

Kandasamy Nirmala, a resident of Satham Nagar in northeastern Sri Lanka,
wanted to run her own business. Her husbands income from fishing was
barely enough to meet the familys daily expenses; she needed something
that would earn an income while allowing her to stay close to her children at
home. She saw an opportunity in the fact that women from her village had
to make a three-hour journey into town to buy groceries, and in 2002 she
set up a convenience store in a front room of her house, selling groceries,
vegetables, and fruits.
However, she faced competition when several other new convenience
stores opened in the village. It was difficult for her to compete with their low
prices because they sourced their products from a large wholesale market,
while she sourced hers from a local wholesaler.
She needed a loan to gain a competitive edge over the other stores. But as
a member of a revolving loan scheme, she was only able to borrow up to
Rs. 5,000 ($108) at a time, at an interest rate of 10 per cent per month (120
per cent annually). In addition, she could not access money when she
needed it, as she had to wait for other members of the scheme to repay
their loans.
Kandasamy is also a member of the Satham Nagar Sarvodhayam Society,
a community organization supported by Sri Lankan NGO Sarvodhaya and
Oxfam GB. The society helped her to negotiate a loan from Peoples Bank
of Rs. 50,000 ($1,077) at an annual interest rate of 8 per cent, and also
helped her to access business management training and support from
business development service providers such as Sarvodhaya Economic

5 7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011

Enterprise Development Services (SEEDS). This enabled her to invest in a
wide range of supplies, attracting new customers, doubling her monthly
stock turnover, and increasing sales from Rs. 600 to Rs. 1,500 per day.
She says. Now I earn enough to contribute equally towards the household
expenditure. I have enough money at hand to look after my childrens
education needs [and] I now have the confidence to negotiate with bank
officers and managers.

Outcomes
To date, the activities of Oxfam and its partners have assisted some
40,000 wage earners and small-scale farmers, 70 per cent of whom are
women. Access to financial services has helped farmers to obtain
better prices for their produce, as they are no longer obliged to sell
back to the traders who provide loans. On average, farmers have
seen increases in farm gate prices of up to 200 per cent. Additionally,
they have made savings on loan repayments, as interest rates on
loans from the formal sector are as low as 8 per cent annually,
compared with the 200 per cent per annum charged by the informal
sector. Savings on repayments vary depending on the size of the
loan.
The reduction in the costs of production due to the lower interest
rates and the increase in farm gate prices have both contributed to
generating increased profits. On average, farmers have seen their
profits rise by 50 per cent over each production period (typically of
six months). This in turn has enabled them to make self-investments.
They have moved up the agricultural value chain and are able to
engage in processing, transportation, and collective marketing
schemes. Wage earners no longer need to rely on working as casual
labourers to earn an income, but can now lease land to cultivate and
can undertake farming activities on a permanent basis. Over the past
three years, access to formal financial services has enabled more
productive small enterprises to be started and existing enterprises to
grow and become more profitable in higher-value sectors of the value
chain.

Improving access for women

Oxfams gender analysis, undertaken at the start of the programme,
has helped to support women entrepreneurs, and 70 per cent of new
enterprises are owned and managed by women. The gender
assessment highlighted the particular financial needs of women (both
married and single) and the challenges they faced in convincing
banks to provide financial services tailored to their needs.
Gender inequities in access and use of financial services differed
significantly for married women living with their husbands and for
women heading households on their own. In the case of married
women, the main issue was about who in the household controlled
the credit obtained and the income earned from it.

7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011 6

Men generally assign responsibility for attending regular producer
organization meetings to their wives, a tendency compounded by
NGO policies that frequently target women for micro-credit
programmes as part of their gender equity programming. However,
while on paper the loan may have been taken by the woman in the
household, decisions about what loans to take and the incomes
earned from them largely remain in the hands of men. So the
challenge with married women was to increase their say within the
household through gender empowerment programmes, as well as to
create spaces for them to engage independently in non-traditional
livelihoods activities. Most women are confined to taking care of
farm-related activities and have little or no involvement in
agricultural markets. Oxfams programmes have been working to
create opportunities for women to engage in collection, processing,
and transport activities, and also to promote womens engagement in
managing construction-related enterprises such as masonry and
carpentry.
Women heading households on their own by default have control
over credit and income. However, social norms often prevent them
from being recognized as the familys main breadwinner, and male
relatives are frequently seen as such. As a result, womens
entrepreneurial activities and need for credit may not be taken
seriously or given priority. This is a particular issue in the northeast
of the country, where years of conflict have meant that women head
a significant percentage of households. Traditional cultural and
religious beliefs continue to limit womens mobility, acquisition of
skills, ability to make decisions, access to information and resources,
and ownership of resources. In creating financial services for women,
these issues need to be overcome for example, by putting more
emphasis on training and non-financial services, such as technical,
financial, business, and marketing services.
Some of the recommendations implemented by banks to date
include:
Creating capacity development programmes specifically geared
towards the needs of women, e.g. by including confidence-
building and issues related to family responsibilities in training
programmes;
Developing approaches to marketing and promoting financial
services that are more likely to reach women, e.g. through direct
promotion in marketplaces and homes, through service fairs, in
the context of radio programmes popular with women, and by
presenting women as role models;
Developing modalities for delivering financial services that
enable women to benefit from them, e.g. bringing loan officers to
communities instead of requiring women to go to banks, and

7 7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011

 providing part-time financial management training spread out
over longer periods of time.

Box 2. Supporting women to build sustainable businesses

Sharmila Nazreen Jerad lives in Puthukudiyiruppu, near Trincomalee in
Eastern Province. For 20 years there were no formal financial services in
her village because of the conflict in the region and displacement caused by
it. People relied on limited sources of self-finance and on informal financial
services, which limited their opportunities to improve their livelihoods and
left them vulnerable to environmental and economic shocks.
Sharmila is Secretary of the Puthukudiyiruppu Womens Rural
Development Society (WRDS) which, alongside Oxfam and local NGO
SEDOT (Social Economic Development Organization in Trincomalee),
negotiated with local banks to get them to respond better to the specific
needs of rural clients. The banks main concern was the risk of non-
repayment. Using a series of examples, Oxfam and the WRDS
demonstrated that loan repayment rates are often higher for women than
for men, and also that targeting women encourages female empowerment
and financial self-sustainability, while reducing poverty.
As a result, Peoples Bank has disbursed loans worth Rs. 200,000 ($4,306)
to four members of the WRDS and is currently screening more members
for loans. Sharmila herself borrowed Rs. 50,000 ($1,077), which she used
to buy a cow; Peoples Bank also provided her with advice on business and
livestock management. The cow had a calf and she was soon able to buy
another cow from the proceeds of selling milk. She keeps some of the milk
for her family and sells the rest, increasing her monthly income by Rs.
4,000 ($86).
In addition to the extra income, Sharmila has saved the money she would
previously have spent on milk powder and curd, which amounts to
approximately Rs. 1,500 per month. She says, The loan not only increased
my income and assets, but gave me increased status in the household and
community.
Her dream, she says, is to establish a milk-bottling factory, which would
supply milk to schoolchildren and provide employment for other women in
the village. Now, with access to safe and efficient financial services, my
dream is alive again. I feel these institutions can support me to take
advantage of profitable investment opportunities and take risks in the
future.

Wider range of market-based services

Oxfam collaborated with the Federation of Chambers of Commerce
and Industry of Sri Lanka on the Business for Peace initiative to
foster dialogue with key financial institutions, present evidence of
good practice on linkage banking, and support the scale-up of
financial services in the conflict-affected areas of northern and
eastern Sri Lanka. This has led to a wider range of market-based
services being offered, including loans, savings, insurance, and
remittance services. For example:

7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011 8

 The Lanka Putra Bank has opened operations in Eastern Province
in order to provide services to support post-conflict recovery and
local economic development. Its services are supporting
displaced and resettled communities to boost their incomes, thus
improving their ability to buy daily consumables, send their
children to school, build assets, and start up small and micro
enterprises.
In 2008 two insurance companies, Sanasa and Ceylinco, launched
new lines of health, life, and production-related insurance
services targeting small producers in specific sectors of value
chains. These have enhanced the ability of small producers to
cope with external shocks and have reduced the need for them to
borrow from moneylenders at high interest rates.
Crop insurance facilitated through the Agriculture and Agrarian
Insurance Board has helped producers to reduce the risk of
distress selling of assets during disasters.
Sharia-compliant services have been promoted through financial
services providers Amana Takaful and BRAC to support people
who follow Islamic principles to benefit equally from linkages
with the formal sector.
Savings deposits with formal banks have provided vulnerable
and conflict-affected communities with increased security and
greater capacity to make self-investments.

Advocating for a cohesive policy framework

Implementing a facilitative approach has involved a greater focus on
networking and lobbying for Oxfam GB in Sri Lanka, and therefore
has increased the potential for it to have a wider impact. Involvement
in the Business for Peace initiative and in multi-stakeholder forums
at district level has provided opportunities to lobby for improved
industry practices. Oxfam has facilitated the formation of multi-
stakeholder forums in each sector (dairy, paddy, market garden, tea,
and coir) with key government institutions, private sector, and civil
society organizations. These forums plan and co-ordinate sector
development and advocate for better practice. They are attended by
government and industry stakeholders, including private sector
financial institutions, and have enabled Oxfam to facilitate dialogue
on market-driven product development, using evidence from the
pilot work it has done in linking farmers with banks. This is helping
to leverage public and private finance to deliver commercial services
at scale.
This approach has also allowed Oxfam to have a direct influence on
policy outcomes in the financial sector. It has been significantly
involved in ensuring that the new Microfinance Institutions Act
currently in preparation provides a more helpful regulatory

9 7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011

framework for the development of pro-poor financial services. The
Act, which will be implemented by the Non-Banking Supervision
Department of the Central Bank of Sri Lanka, will streamline the
delivery of financial services to prevent wastage of aid funding,
duplication of funds, and corruption. A second draft of the Act is
being prepared by a core committee consisting of the Central Bank,
the Monetary Board, and the Ministry of Finance. The draft was
expected to be ready for consultation in mid-2010 and to be
presented to Parliament at the end of the year.
In the post-conflict context, Oxfams dialogue has continued with
donors (ADB, World Bank, and the Japan International Cooperation
Agency), with government, and with private sector financial
institutions to introduce policies and practices that result in
sustainable financial services for conflict-affected communities, as
opposed to relief-driven micro-finance activities that often dry up
once the funding comes to an end.

Box 3. Lobbying for poor peoples access to banking

Some commercial banks request assets as collateral, but women and
displaced communities seldom own assets or land. The programme was
able to lobby for waivers to such requirements on the basis of strong
feasibility. In all cases banks agreed to offer loans on the basis of business
plans independently verified as viable, with a character reference from a
public servant.
In communities where literacy levels are low, Oxfam and its partners
lobbied financial institutions to conduct information sessions and provide
support to help villagers fill in forms. The programme involved specialist
lawyers and business experts who were able to support communities to
negotiate terms. The simplified procedures enabled a greater number of
poor women and men to be included and to gain access to formal banking.

Sustainability
Overall demand for loans for poor clients in the Oxfam programme
areas, for both productive and social purposes, ranges between Rs.
300 and Rs. 500m (USD 2.7m 4.7m). Connecting with several
different financial institutions in each region has not only increased
the chances of people accessing sufficient credit but also guards
against the risk of a single institution withdrawing from the region or
local market segment, as well as the risk of conflicts developing with
a single lender.
For communities to access these services, it was not enough for
Oxfam merely to provide information to them and to the financial
institutions. In order to encourage institutions to service the poorest
communities, Oxfam and its partners worked with them to reduce
the high risk of defaults and the cost of service delivery. This
involved:

7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011 10

 Clearly explaining to communities that the source of funding for
the loans was not from NGOs but from formal financial
institutions, and that repayment must be taken seriously;
Making compulsory the purchase of savings insurance for all
households taking loans for production facilitated by Oxfam. The
cost of insurance was built into the total loan taken and was
marketed by the banks as a financial services package;
Starting with small loan amounts and gradually increasing them,
especially in communities with no previous micro-credit history,
thus helping to reduce the risk of borrowers being unable to
repay loans.
Oxfams role has been to support producer organizations to develop
good governance that will enable them to interact with formal
financial institutions on an equal footing. This has involved
supporting them to develop risk management systems for facilitating
linkages with institutions, developing their capacity in organizational
management and administration, and developing systems for
disseminating market intelligence, so that they receive up-to-date
information which enables them to make informed choices when
choosing which financial institutions to engage with.
When selecting accountable and viable financial service providers
that were likely to enter rural communities and continue to offer their
services there, Oxfam considered the following factors:
Their products and services were market-based and reflected a
commercial approach, rather than philanthropy;
They were prepared to commit resources towards non-monetary
support services, including capacity-building, technical support,
and monitoring.
The programme has shown that it is possible to increase the outreach
of financial services and to expand services to poor women and men
in even the remotest rural areas, through the use of innovative
public-private-producer partnerships. As explained by Mr
Udayakumar, Divisional Officer of Vellavally DS Division, Capital is
always available, but the problem is in creating linkages between
financial institutions and farmers, who largely remain unorganized
in rural areas.
Working with mainstream financial service providers to develop new
linkage models for financial services benefits many more poor people
than the direct beneficiaries of Oxfam programmes, since the changes
made are embedded in the policies, attitudes, and practices of formal
financial institutions. Furthermore, the models piloted have
enormous potential to be scaled up and replicated across Sri Lanka.
In each of the programme districts in Northern and Eastern
provinces, Oxfam has supported the District Secretariat and the

11 7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011

Federation of Chambers of Commerce to establish District Enterprise
Forums (DEFs). These multi-stakeholder forums bring together
producer organizations, policy- and decision-makers, donors, service
providers such as financial institutions, and various market actors to
contribute to local economic development. The forums have enabled
the participating financial institutions to showcase evidence of good
practices and lessons learned about reaching rural clients, and this
has encouraged and motivated others to follow suit.
Oxfam has recently completed a market assessment on the demand
and supply of financial services in the post-war context, and its
findings are being disseminated via the DEFs in order to influence
the way that services are designed and delivered to conflict-affected
communities. Additionally, Oxfam has completed a study on the
impacts of co-operative lending policies and practices on women
members, and this is being used to shape the Department of
Cooperative Developments approach to women producers.

Box 4. A wider range of market-driven services

The facilitative approach has enabled clients to access other services
beyond credit. These include bank accounts, remittance services,
insurance schemes, and pensions. For example, Oxfam and its partners
have held discussions with the Agricultural and Agrarian Board to introduce
a crop insurance scheme for chili cultivation, adding to existing schemes for
paddy, maize, onions, and betel. They are now considering insurance
schemes for other crops such as eggplant, okra, snake gourd, bitter gourd,
and banana. Oxfam has also facilitated access to life insurance through
Ceylinco and Amana Takaful and has linked small producers to government
pension schemes.
Both Kandasamy Nirmala and Sharmila Nazreen Jerad have taken
advantage of such schemes. Kandasamy has deposited savings at the
Peoples Bank and has taken out a life insurance policy with Ceylinco Life
Insurance and a pension scheme with the Department of Agriculture.
Sharmila has savings accounts with Peoples Bank and the Bank of Ceylon.
She has also taken out life insurance with Ceylinco and livestock insurance
through the Department of Livestock Development. She says, Usually we
sell assets to combat any external shocks, but now I feel more secure
against potential losses and have greater capacity to make self-
investments.

Conclusion
The programme highlights the impact that can be achieved with
limited resources by adopting a facilitative approach in the provision
of financial services. It shows the benefits of partnering with formal
financial service providers, where market-based, cost-efficient,
demand-driven financial products have improved opportunities for
small producers to participate in higher sectors of the value chain on
an equal footing.
Engaging financial service providers to deliver innovative business
support services has significantly reduced costs and risks to both

7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011 12

institutions and communities. The programme demonstrates how
important it is to advocate all the way from local to national levels to
create an enabling legal and regulatory environment that allows for
the development of inclusive and sustainable financial services,
which bring benefits to much greater numbers of poor people.
The programme has proved to be an effective tool in freeing people from
poverty and increasing their participation in economic and political
systems. Over the past three years, poor people have used affordable credit
to start new enterprises and expand existing ones. They have taken
advantage of increased earnings to improve consumption levels, send their
children to school, access health care, and build their assets. Secure, formal
savings and insurance services have provided a cushion when families
have needed more money for seasonal expenses or in tough times. With
the higher interest rates on savings offered by formal financial institutions,
families have been able to increase their savings by up to 20 per cent. There
are also indications that they have been able to increase their spending on
jewellery, which is considered a form of savings in times of distress.
Women in particular have been empowered to participate in making the
decisions that most affect their lives. By providing opportunities for self-
employment, the programme has significantly increased womens
security, autonomy, self-confidence, and status within households and in
the wider community.
Oxfams next step in engaging with this sector is to continue its research
and advocacy efforts to highlight the key changes needed and to shape
debate by raising awareness externally, so that financial service providers
as well as policy-makers and donors better understand the multiple
ways that they can affect poor people, and so that they are motivated and
pressured to improve their policies and practices.
The key changes needed include:
The role of government: an enabling policy and regulatory
environment are required to ensure transparency and to encourage the
development of innovative, demand-driven financial services
targeting poor women and men;
The need for a wide range of services for poor rural people: rising
living costs, increased production shifting towards local markets, and
the need to expand and rebuild businesses will all lead to a higher
demand for loans and financial safety nets in the post-conflict
environment. Financial institutions need to introduce innovative
business models and business support services in order to expand
their services to cater for rural-based micro, small, and medium-scale
enterprises, not just well-established urban businesses;
Reaching women: financial institutions need more flexible approaches
to providing services and products for women to meet their complex
needs;

13 7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011

 The role of donors: donors need to be sensitive to existing providers of
formal and informal financial services when supporting post-conflict
programmes. In particular, in-kind and cash grants and transfers can
distort the market and delay the development process for formal
financial institutions;
Public-private partnerships: the sector needs to adapt modern
technologies to introduce scalable models for delivering financial
services (such as mobile banking) through private sector partnerships.
This can significantly reduce operational costs for banks and
transaction costs for poor clients, and can help reach thousands of
people in remote parts of the country.
Although the programme is still at an early stage and an independent
evaluation will be needed before firm conclusions can be drawn on its
success in terms of the sustainability of loan repayments beyond Oxfams
exit, early indications are positive, as the experience of some of the
beneficiaries shows (see Box 5).

Box 5. Making linkage banking work for small-scale producers

In 2006, H.M. Muthubanda, a 67-year old farmer from Trincomalee, was
selected to be a beneficiary of Oxfams market garden programme, which is
being implemented with the assistance of SEDOT and Sarvodaya. In the
initial stages of discussion with all those involved in market gardening,
farmers identified difficulties in accessing bank loans as one of their biggest
challenges.
Oxfam lobbied the banks to join the programme, and the Peoples Bank
agreed to provide Rs. 50,000 ($445) as a loan to the farmers. As many
farmers in the area were also facing difficulties due to water shortages,
Oxfam facilitated loan schemes for farmers to build wells and purchase
watering equipment.
The loan Muthubanda received from the bank enabled him to cultivate an
additional two acres of land and increase his income. He says, My earnings
from the vegetable garden have allowed me to take care of my family. I am
looking forward to improving it some more. With the earnings, I am going to
fix up my house, build a well, and expand in to the poultry trade. I have
great plans for the future.
In Batticaloa district, farmers have suffered due to the negative effects of
conflict and displacement and also because of a lack of low-cost capital and
irrigation facilities. In 2008, Oxfam established a Steering Committee to
oversee the development of the paddy sector, following an in-depth analysis
of the industry.
The committee plays an important role in influencing industry practices and
policy outcomes in favour of poor farmers. One of its first activities was to
improve linkages between farmers and banks in order to increase farmers
access to affordable financial services from the formal sector. To date, over
10,000 paddy farmers have accessed loans ranging from Rs. 7,500 to Rs.
250,000 ($67$1,335) at 8 per cent per annum.
In 2008, for the first time in the two decades he has been cultivating his
paddy fields, Theivanayagam Southanrajah took a loan from Peoples
Bank. Before, I was paying 10 per cent interest each month to the money
lender, now I pay the bank 8 per cent interest per annum, he says.

7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011 14

Another farmer who received a loan in the same year is Mohaneswary, who
proudly explained how she cultivated paddy with her own money. I
borrowed Rs. 30,000 ($267) from Peoples Bank. The total interest I paid
was only Rs. 860 ($7.65) over a six-month period. After harvesting, I kept
the paddy for two months and sold at a higher price of Rs. 2,300 ($20.46)
per 65kg of rice. If I had sold through the local traders I would have
received only Rs. 1,200 ($10.67) per bag. My earnings for the last season
increased by Rs. 35,000 ($311).
Today, Peoples Bank, Hatton National Bank, and the Bank of Ceylon are
participating in this programme. The banks are very happy, as 100 per cent
of the loans taken in the first year have been repaid. The farmers have also
recognized the benefits of taking loans from formal institutions. In the first
year of the programme 400 loans were taken; in the second year there
were 2,000 loan applications, explained Thyiyagarajah Saravanapavan, a
programme officer with Oxfam GB in Batticaloa.

Key lessons learned and future priorities

A managed risk approach is necessary at all levels when facilitating or
brokering relationships between different actors. Oxfams new
approach required many of its staff and partners to become more
aware of their roles and responsibilities in driving change and to learn
how to make convincing business cases to private sector actors to
expand and improve their service provision.
It is a challenging task to bring marginalized farmers groups with
limited reach together with commercially driven banks that are able to
deliver services at scale. However, evidence gathered from Oxfams
pilot linkage models has enabled it to present benchmarks for future
replication and scale-up.
In terms of facilitation, it is important to ensure that activities are
shaped by an assessment of the overall financial services market
system, in order to identify potential and key constraints that need to
be overcome.
It is important for organizations such as Oxfam to remember that their
job is to act as a catalyst in stimulating the financial services sector to
become more competitive and to grow to service the poorer sections of
society, and that engaging and collaborating with different key
stakeholders ensures sustainability.
It is equally important to have a clear exit strategy, so that once the
commercially driven activity of market players (both public and
private sector) has grown, the facilitator organization can phase out its
involvement. Oxfam has focused on developing a Federation of
Producer Organizations at district level, which will facilitate members
access to formal financial services while being recognized as a legally
credible organization in their industry.

15 7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011

Notes

1
Asian Development Bank (2002) The Commercialization of Microfinance in
Sri Lanka.
2
World Bank Report (2007).The term unbanked refers to people who have
no access to financial services (including savings, credit, money transfer,
insurance, or pensions) through any type of financial sector such as banks,
non-bank financial institutions, financial co-operatives and credit unions,
financial companies, or NGOs (World Bank definition).
3
In Sri Lanka, over 80 per cent of poor rural communities rely on substitutes
to banking available in the informal sector, such as village-based money
lenders and traders who charge higher rates of interest than market rates.

Oxfam GB, April 2011

This paper was written by Gayathri Jayadevan. We acknowledge the assistance of
Katie Allan, Emma Donne, Claire Harvey, Abigail Humphries Robertson, David
Wilson, and Kirsty Wilson in its production. It is part of a series of papers written to
inform public debate on development and humanitarian policy issues. The text
may be freely used for the purposes of campaigning, education, and research,
provided that the source is acknowledged in full.
For further information please email [email protected] or go to
http://publications.oxfam.org.uk
ISBN 978-1-84814-847-5. This paper is part of a set Small Farmers, Big Change:
Achieving scale in the development of smallholder agriculture.

Oxfam GB
Oxfam GB is a development, relief, and campaigning organization that works
with others to find lasting solutions to poverty and suffering around the world.
Oxfam GB is a member of Oxfam International.
Oxfam House
John Smith Drive
Cowley
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OX4 2JY

Tel: +44.(0)1865.473727
E-mail: [email protected]
www.oxfam.org.uk

7. Bridging The Gap, Programme Insights, Oxfam GB. April 2011 16