An Analysis of Demand for Microfinance in Sri Lanka

Necessity of microfinance services is upraising with the increased complexity of rural life style. Economic pattern of rural communities and the performance of informal financial sector are two cornerstones of the modern microfinance services. It is expected that the demand for microfinance will be increased as the complexity of rural life thrived. Yet, a downward trend is noted in the demand for microfinance by the rural community of Sri Lanka with the introduction of social benefit programmes particularly, the “Samurdhi” Programme. Thus, the motive of this study was to empirically evaluate the factors affecting the demand for microfinance. In particular, it was based on the clients of Samurdhi Prajamula Banking Societies (SPBSs) in Diganwewa Division, Puttalam District of Sri Lanka. The study was quantitative and used the survey research method. The sample was randomly drawn from Samurdhi beneficiaries who are currently the members of SPBSs. The data were gathered by administering a close-ended questionnaire while univariate and bivariate analysis analysed them. The results indicated that the general literacy & income of potential borrowers and also receipt of social benefit by the potential borrowers are significantly predicting the intention to obtain microfinance. Additionally, demand for loan securities, service features and interest charged for the microfinancing facilities are affecting the demand for microfinance. Among the factors related to borrower, literacy level and income of them found positively and significantly affecting the microfinance demand. Yet, a negative influence was noted with respect to receipt of social benefits on the demand for microfinance. All the factors, except service features of the credit facility, negatively affecting the demand for microfinance.