35831
  Public Disclosure AuthorizedPublic Disclosure AuthorizedAID EFFECTIVENESS INITIATIVE
                        COUNTRY-LEVEL 
           EFFECTIVENESS AND ACCOUNTABILITY REVIEW
                           (CLEAR)
  Public Disclosure AuthorizedPublic Disclosure Authorized
                         SRILANKA
  Public Disclosure AuthorizedPublic Disclosure Authorized
                           February 2006
  Public Disclosure AuthorizedPublic Disclosure Authorized
                          Eric Duflos (CGAP)
                     Joanna Ledgerwood (CGAP Consultant)
                          Brigit Helms (CGAP)
                      Manuel Moyart (CGAP Consultant)
                                                              TABLE OF CONTENTS
                   LIST OFACRONYMS .................................................................................................................  iv
                   ACKNOWLEDGMENTS...............................................................................................................  v
                   MAPOFSRILANKA.................................................................................................................  vi
                   EXECUTIVE SUMMARY .............................................................................................................   1
                   I.     BACKGROUND ..................................................................................................................   3
                   II.   OVERVIEW OF MICROFINANCE IN SRI LANKA.................................................................   5
                        Economic, Political and Social Context .........................................................................................  5
                        Evolution of the Financial System .................................................................................................   6
                        Microfinance Stakeholders ............................................................................................................    6
                        Microfinance Funders ....................................................................................................................   8
                        Recent Trends in Microfinance .....................................................................................................   8
                   III.  ANALYTICAL FRAMEWORK .............................................................................................   12
                   IV.   DONORS SYSTEMS ..........................................................................................................   14
                        Strengths and Weaknesses of Donor Systems in Sri Lanka ......................................................... 14
                        Consequences of Tsunami Support on Aid Effectiveness in Microfinance .................................. 16
                        Recommendations on Donor Systems in Sri Lanka ...................................................................... 17
                   V.   GAPANALYSISINTHE SRI LANKAN FINANCIALSYSTEMS .............................................  19
                        Micro Level (retail financial service providers) ............................................................................ 19
                        Meso Level (support services, apexes, networks).......................................................................... 21
                        Macro Level (policies, laws, regulation and supervision) ............................................................  25
                   ANNEXES .................................................................................................................................  28 
                        Annex 1—Summary Matrix of Donor Recommendations ............................................................ 28
                        Annex 2—List of Donor Projects .................................................................................................. 29
                        Annex 3—Donor Instruments ........................................................................................................ 31
                        Annex 4—Donor Funding in Microfinance ................................................................................... 32
                        Annex 5—Microfinance Providers ................................................................................................ 33
                        Annex 6—Geographical coverage of Microfinance Providers ..................................................... 34
                        Annex 7—Population per Point of Service ...................................................................................  35
                        Annex 8—List of Documents Consulted ....................................................................................... 36
                        Annex 9—List of Persons Consulted ............................................................................................. 41
                                                                                                                                      iii
        LIST OFACRONYMS
        ACCDC     All Ceylon Community Development Council
        ADB       Asian Development Bank
        BMZ       Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung
        CIDA      Canadian International Development Agency
        CGAP      Consultative Group to Assist the Poor 
        CLEAR     Country-level Effectiveness and Accountability Review
        CRB       Cooperative Rural Bank
        EC        European Commission
        FSAP      Financial Sector Assessment Program
        GDP       Gross Domestic Product
        GSL       Government of Sri Lanka
        GTZ       Gesellschaft für Technische Zusammenarbeit
        HNB       Hatton National Bank 
        IFAD      International Fund for Agricultural Development 
        IFC       International Financial Corporation
        IFI       International Finance Institution
        IMF       International Monetary Fund
        INGO      International NGO
        JBIC      Japan Bank for International Cooperation
        JVP       Janatha Vimukthi Peramuna
        KfW       Kreditanstalt für Wiederaufbau
        LKR       Sri Lankan Rupee
        LTTE      Liberation Tigers of Tamil Eelam
        MDG       Millennium Development Goals 
        MFI       Microfinance Institution
        MIS       Management Information System
        MPCS      Multi-Purpose Cooperative Society
        NGO       Non Governmental Organization
        NPL       Non-Performing Loan 
        NTDF      National Development Trust Fund
        PAMF      Poverty Alleviation Microfinance Project—Isuru
        PAR       Portfolio at Risk
        RADA      Reconstruction and Development Agency
        RFSDA     Rural Financial Services Development Agency
        RDB       Regional Development Banks 
        SIDA      Swedish International Development Agency
        SDC       Swiss Agency for Development and Cooperation
        TAFREN    Task Force to Rebuild the Nation (now RADA)
        TCCS      Thrift and Credit Cooperative Society 
        UNF       United National Front
        UNDP      United Nations Development Programme
        UPFA      United People’s Freedom Alliance 
        USAID     United States Agency for International Development
        WB        World Bank
        WDFH      Women Development Fund Hambantota
        iv