Sustainability of community based microfinance programmes in livelihood development for war affected areas in Sri Lanka – Experience from the rawakening project (RAP)

Abstract

Introduction

Microfinance can be considered as a concept which has received high recognition in community development programs due to its attempts in involving marginalized groups in the mainstream development process. The establishment of the Grameen Bank by Muhammad Yunus was the major milestone that resulted in the identification of microfinance as a community development strategy among development thinkers. In fact, community based microfinance became popular along with the introduction of participatory development or people centred development where the decisions are made at grass-roots level. The term microfinance is often confused with microcredit and therefore, prior to understanding how sustainable community based microfinance programs are, it is important to differentiate between the two terms. Microcredit refers to the provision of small scale loans to poor people and microfinance refers to the process through which financial services are provided, such as initiating savings institutions or insurance schemes (Sengupta and Aubuchon, 2008).

Taking microfinance as one of the main strategies, Community Livelihoods in Conflict Affected Areas Project which is known as the Re-awakening project was initiated in 2005 in the North Eastern Province. The aim of the project was empowering people in the war affected areas of Sri Lanka through capacity building and livelihood development to foster sustainable social and economic reintegration. The project was initiated through two major components namely, village rehabilitation and development, and essential rehabilitation and improvements to major irrigation schemes. The study mainly focuses on how microfinance was used as a mechanism in village rehabilitation and development and the extent to which it was sustainable.

The project implementers selected war affected and poverty stricken villages for the project, based on specific criteria developed by them and covered 1,039 villages in twelve districts. Project officers then publicized the project through posters and leaflets and called a meeting of the villagers in which 80% participation of villagers was deemed necessary. During the meeting, the participants were informed about the project and also about the formation of a Village Development Organization (VDO) through which activities related to microfinance would be implemented. VDO is composed of several small groups, each made of 5 to 7 villagers. The villagers are given the freedom to form such small groups based on residential proximity. Thus small group members are usually neighbours who are well known to each other.

The whole process of forming groups and the VDO takes approximately three months. The VDO also includes 5 subcommittees, namely those on microfinance, social audit, infrastructure, procurement and economic promotion. Based on the number of people in the village, Rs.6000 is allocated per person and a fund is formed. Once the fund is formed, 50% of the fund is allocated for livelihood development, 40% for infrastructure development and 10% for capacity building. When the activities are implemented, a young educated resource person from the village itself is appointed to manage the tasks of the VDO. Once the VDO is established a Village Development Plan (VDP) is prepared using the data gathered from a Participatory Rural Appraisal session. The VDP evaluates the families based on their economic status through which the poorest families are given the first priority in the livelihood development process. The villagers are given loans ranging from Rs. 30,000.00 to Rs. 200,000.00. However the applications by the villagers should be processed through the recommendation of the small group in which he/she is a member. The application is then sent to the microfinance subcommittee for evaluation and the final decision of granting the loan depends on the approval of the Maha Sabha (the VDO assembly). The loan amount is then decided by the Livelihood Development Officer who visits the beneficiary for the final evaluation.