RESEARCH MONOGRAPH SERIES STRENGTHENING CREDIT UNIONS IN SRI LANKA: DISPELLING THE MIDDLE CLASS MYTH

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1 RESEARCH MONOGRAPH SERIES Number 19 STRENGTHENING CREDIT UNIONS IN SRI LANKA: DISPELLING THE MIDDLE CLASS MYTH 5710 Mineral Point Rd. PO Box 2982 Madison, Wisconsin USA Phone: (608) Fax: (608) Prepared by: Anna Cora Evans August 2001 Quality Credit Unions for Everyone

2 TABLE OF CONTENTS EXECUTIVE SUMMARY... 1 I. ROADMAP... 6 II. CREDIT UNIONS IN SRI LANKA: THE SANASA MOVEMENT... 6 LEGAL FRAMEWORK... 6 STRUCTURE & SCALE... 7 OVERVIEW OF WOCCU/SANASA CREDIT UNION STRENGTHENING PROJECT... 7 BACKGROUND ON KIRIMETIYANA & PETHIGODAGEDARA PRIMARY SOCIETIES... 7 Kirimetiyana PS... 7 Pethigodagedara PS... 8 III. OUTREACH... 8 SAVINGS OUTREACH: AN OVERVIEW FOR ALL WOCCU PROJECT PRIMARY SOCIETIES... 8 SAVINGS OUTREACH: AN IN-DEPTH EXAMINATION OF TWO PRIMARY SOCIETIES... 9 Scale... 9 Gender Depth LOAN OUTREACH: AN OVERVIEW FOR ALL WOCCU PROJECT PRIMARY SOCIETIES LOAN OUTREACH: AN IN-DEPTH EXAMINATION OF TWO PRIMARY SOCIETIES Scale & Loan Purpose Gender Depth IV. FINANCIAL PERFORMANCE CONSOLIDATED PERFORMANCE OF 72 PRIMARY SOCIETIES AND 2 INDIVIDUAL PS Protection Effective Financial Structure Asset Quality...21 Rates of Return and Costs Liquidity Signs of Growth (Annual Growth Rates) V. CASE STUDY CREDIT UNION PRODUCTS VS. COMPETITORS SAVINGS PRODUCTS & INTEREST RATES OFFERED AT PRIMARY SOCIETIES SAVINGS PRODUCTS & INTEREST RATES OFFERED BY COMPETITION...26 LOAN PRODUCTS & INTEREST RATES OFFERED AT PRIMARY SOCIETIES...27 LOAN PRODUCTS & INTEREST RATES OFFERED BY COMPETITION...28 INSURANCE PRODUCTS OFFERED BY PRIMARY SOCIETIES...30 INSURANCE PRODUCTS OFFERED BY COMPETITION...30 VI. CONCLUSIONS...31

3 EXECUTIVE SUMMARY This case study examines the outreach and performance of primary societies in Sri Lanka. Despite Marguerite Robinson s assertion that credit unions tend to lend mainly to middle-class salaried borrowers, 1 the depth of outreach of these credit unions to poor and low income Sri Lankans disproves the applicability of Robinson s statement to the credit unions providing microfinance services in rural Sri Lanka. In Sri Lanka, there are three tiers of the credit union system: the top tier, the Federation of Thrift and Credit Cooperative Societies of Sri Lanka, more commonly known as SANASA (the FTCCS acronym in Sinhala); the second tier, the district unions; and the third tier, the primary societies. The modern SANASA movement began its revitalization in At year-end 2000, more than 8,400 registered primary societies provided one million members with savings and credit and served an additional undocumented number of non-member clients and youth with microsavings services. This report focuses on the outreach and performance of the credit union base providing an overview of 72 partner primary societies with $4.8 million in assets and an in-depth case study analysis of two primary societies, Kirimetiyana PS and Pethigodagedara PS. These credit unions are located in rural areas where coconut farming and processing is prevalent. Kirimetiyana PS serves a remote town of 5000 inhabitants. This credit union serves 441 members, 50 non-member client savers and 136 youth savers. The manager and the board describe the composition of the primary economic activity of its members as 50% agriculture day laborers, 30% public employees and 20% self-employed business people. This credit union had $101,424 in assets on December 31, Pethigodagedara PS serves three rural villages with a total population of This credit union serves 600 members, 325 non-member client savers and 260 youth savers. According to the manager and the board, 60% of the membership is involved in agriculture and small and micro agribusiness, 10% in nonagriculture microenterprise, 25% are daily agriculture wageworkers, and 5% are public employees. At year-end 2000, this credit union had $146,478 in assets. The World Council of Credit Unions, Inc. (WOCCU) in coordination with its local partner, SANASA, has worked to strengthen the performance and increase the outreach of a small subset of approximately 80 primary societies of the registered 8,400 primary societies. The intent of the technical assistance has been to bolster the credit unions capacity to provide microsavings and microcredit services to poor people. For the purposes of analysis for this report, average and median loan and savings deposit sizes are used as proxies for income level. The US Agency for International Development (USAID) has funded this effort with $710,000 from February 1998-September OUTREACH SAVINGS OUTREACH. As of December 2000, 72 credit unions serving 26,424 members were participating in the WOCCU Sri Lanka project. These 72 credit unions had mobilized $3.7 million in savings by year-end The average deposit size per number of deposit accounts was $58. This average deposit size is 7% of GNP per capita. There were 879 deposit accounts in Kirimetiyana PS in December The average deposit size at Kirimetiyana PS per member-client was $112 dollars, representing 14% of GNP per capita. There were 1 Robinson, Marguerite S. The Microfinance Revolution: Sustainable Finance for the Poor, May 2001, The World Bank, Washington, DC, p

4 1928 deposit accounts at Pethigodagedara PS at year-end The average deposit size per memberclient at Pethigodagedara PS was $97 or 12% of GNP per capita. Data from December 2000 Kirimetiyana PS Pethigodagedara PS # of Deposit Accounts Average deposit size per member-client $112 $97 Avg. deposit size as % of GNP per capita 14% 12% At Kirimetiyana PS, women have 54% of the number of deposit accounts and hold 47% of the total savings volume. At Pethigodagedara PS, women have 62% of the deposit accounts and hold 62% of the savings volume. At Kirimetiyana PS, 88% of the deposit accounts are for amounts less than $100. While these small accounts make up only 21% of the volume of deposit accounts, a mere 4.5% of accounts larger than $300 make up 64% of the savings volume. At Pethigodagedara PS, 90% of the savings accounts are for amounts less than $100. These small accounts make up only 38% of the volume of deposit accounts, while a mere 3% of accounts larger than $300 make up 43% of the savings volume. Data from December 2000 Kirimetiyana PS Pethigodagedara PS % of Number of Deposit Accounts <$100 88% 90% % of Volume of Deposit Accounts <$100 21% 38% LOAN OUTREACH. Paralleling the 40% growth in savings volume from , the gross loan portfolio of the 72 credit unions increased 44% from December 1998 at $2.4 million to $3.4 million in December The average loan size outstanding in 2000 was $162. The average loan size of $162 in 2000 represents 20% of GNP per capita. Both average deposit and outstanding loan sizes suggest significant depth of outreach. Kirimetiyana PS had 221 loans granted as of December At this time, the average loan size granted was $444 and the median loan size granted was $ The average loan size granted represents 54% of GNP per capita and the median loan size granted represents 38% of GNP per capita. Pethigodagedara PS had 625 loans granted as of December The average loan size granted at Pethigodagedara PS was $270 while the median loan size granted was $184 in December The average loan size granted was 33% of GNP per capita and the median loan size was 22% of GNP per capita. Data from December 2000 Kirimetiyana PS Pethigodagedara PS Number of Loans Granted Average Loan Size Granted $444 $270 Avg. Loan Size Granted as % of GNP per capita 54% 33% Median Loan Size Granted $313 $184 Median Loan Size Granted as % of GNP per capita 38% 22% Both Kirimetiyana PS and Pethigodagedara PS have diverse loan portfolios -- their portfolios have a mix of microenterprise, agriculture, housing and consumer loan purposes. 2 NOTE: The loan information available for both Kirimetiyana PS and Pethigodagedara PS is on loans GRANTED and not loans OUTSTANDING. Outstanding balances are smaller than the full loan size granted. 2

5 Kirimetiyana PS has four loan purposes that it records in its books: a) microenterprise; b) housing; c) consumer; and d) instant. While microenterprise business loans are 27% of the number of loans, they represent 61% of the loan portfolio volume. The loan portfolio volume is dominated by microenterprise loans. The purpose of small-sized instant loans is not documented. Five loan purposes are recorded at Pethigodagedara PS: a) microenterprise/business; b) agriculture; c) instant; d) housing; and e) consumer. At Pethigodagedara PS, microenterprise business loans are 47% of the number of loans and they represent 67% of the loan portfolio volume. Consumer loans make up only 5% of the number of loans at Pethigodagedara PS. At Kirimetiyana PS, women hold 56% of the number of loans granted and these loans represent 55% of the loan portfolio volume. At Pethigodagedara PS, women hold 59% of the number of loans granted and these loans represent 58% of the loan portfolio volume. At Kirimetiyana PS, loans granted for amounts less than $300 are 46% of the number of loans. Three-fourths (77%) of the loans are for less than $500. At Pethigodagedara PS loans granted for amounts less than $300 make up 69% of the number of loans. A total of 92% of the loans are for amounts less than $500. FINANCIAL PERFORMANCE This section looks at key ratios of the WOCCU PEARLS Monitoring System to assess the consolidated financial performance of all 72 primary societies and the individual performance of Kirimetiyana PS and Pethigodagedara PS. The PEARLS System examines Protection, Effective Financial Structure, Asset Quality, Rates of Return and Costs, Liquidity, and Signs of Growth. Protection: The important financial discipline of making allowances for loan losses was not practiced by the Sri Lankan primary societies until the inception of WOCCU technical assistance. Whereas provisions for loan losses were 0% at year-end 1998, by year-end 2000 all of the 72 partner credit unions had implemented the discipline of provisioning 100% for loans delinquent for more than twelve months. Effective Financial Structure: finance the lending portfolios of the 72 primary societies. From , the credit unions have had more savings than loans outstanding. As of December 2000, there is 7.8% of external credit to total assets in these 72 consolidated credit unions. Many of the individual credit unions do not have any external credit. In order to ensure credit union possibilities for growth and to protect the institution from defaults or economic downturns, it is imperative that the institution builds up institutional capital to a minimum of 10% of institutional capital to total assets ratio. This institutional capital is separate and distinct from member share capital. The 24 credit unions in Group 1 involved in the program since late 1998, such as Kirimetiyana PS and Pethigodagedara PS, have received bi-monthly training visits from the IDU. They typically reveal strong levels of institutional capital of above 10%; however, the consolidated 72 credit unions reveal a downward trend towards insufficient capital reserves. Asset Quality: The report considers total delinquency and non-earning assets. The most worrisome aspect of credit union financial performance is delinquency (portfolio-at-risk calculated on outstanding balance at 30 days). There has been a dramatic lowering of delinquency that has resulted from training in improved credit administration and collection. Delinquency in December 1998 for these 72 credit unions was 40.5%. The consolidated delinquency in 72 credit unions was 22.0% in December Pethigodagedara PS had delinquency of 47.9% in August 1998 and reduced delinquency to 2.1% 3 in 3 Pethigodagedara PS had reduced its delinquency to 2.1% at its year-end (August 2000). By November 2000, the delinquency had risen to 10.3%. This case provides the lesson that an institution can never be too confident about 3

6 August 2000 with technical training from WOCCU. Kirimetiyana PS reduced delinquency from 11.2% in December 1998 to 4.3% in December The 72 consolidated credit unions have a non-earning assets to total assets ratio (12%) that is higher than the WOCCU International Standard of Excellence of lower than 7%. Kirimetiyana PS has not had difficulty keeping non-earning assets under 4% while Pethigodagedara PS has decreased non-earning assets from 10.5% to a respectable 6.4%. Rates of Return and Costs: The report looks at member dividends, operating expenses and return on assets. The WOCCU IDU has not succeeded in convincing the leaders of the 72 partner credit unions that they should offer a yearly dividend to their members that is, if not as high as what savings deposits earn, than at least a rate above inflation. Members typically receive no annual dividend. Compared to other microfinance institutions (MFIs), credit unions have extraordinarily low operating expense ratios the primary ratio determining efficiency. The operating expenses of the 72 credit unions are 3.8% of average assets in At Kirimetiyana PS, operating expenses are 4.6% and at Pethigodagedara PS, operating expenses are 3.2%. This level of operating efficiency is unmatched by other small-size microfinance institutions. Credit unions are not-for-profit, member-owned financial institutions; however, not-for-profit does not mean operating at a loss. The 72 credit unions have low levels of institutional capital; they are not generating sufficient profit to maintain a strong capital position. Kirimetiyana PS and Pethigodagedara PS are each respectively earning a high enough unadjusted return on assets to maintain institutional capital at a 10% minimum. Liquidity: Among their deposit products, the Sri Lankan credit unions offer voluntary withdrawable passbook savings. For this reason, liquidity management is absolutely essential so that the institutions can maintain a delicate balance between having sufficient liquidity to meet withdrawal demand and avoiding a situation of excess liquidity wherein funds are idle. The WOCCU Standard of Excellence for Liquidity is a minimum of 15% of total deposits. The 72 credit unions had 17% in 1999 and 13.3% in In terms of the case study credit unions, Kirimetiyana PS had 16.6% liquidity and Pethigodagedara PS had 11.9% in 2000 Signs of Growth: The report considers annual growth rates in total assets and membership. The 72 partner credit unions have met and surpassed the goal of growth in assets above annualized inflation. The consolidated figure hides the variety that both Kirimetiyana PS and Pethigodagedara PS illustrate. Growth in assets from 1999 to 2000 at Kirimetiyana PS was 84.5%. Pethigodagedara PS, mirrors the growth of the 72 from 1999 to 2000 with total asset growth of 22%. One of the essential tenants of credit union philosophy is that credit unions should offer access to quality financial services to as many members as possible; therefore, growth in membership of 5% per year is a goal for credit unions around the world. The 72 partner credit unions have been growing their members by approximately 21% per year. Kirimetiyana PS increased membership by 21.8% while Pethigodagedara PS increased membership by 5.2% from 1999 to CREDIT UNION PRODUCTS & THEIR COMPETITION Both Kirimetiyana PS and Pethigodagedara PS offer four types of savings products: passbook savings, fixed deposits, youth savings and interest-bearing compulsory savings. When compared to a commercial bank (Seylan Bank) and a state-owned bank (Bank of Ceylon) that the credit unions consider as loan repayment, particularly if its loan portfolio is susceptible to external economic shocks such as the decreased global price for coconut in the case of Pethigodagedara PS. 4

7 competitors, one discovers that credit unions pay higher rates on passbook savings than both of these banks do. Banks pay somewhat higher rates of interest on fixed deposits; however, their minimum balances are as large as ten times higher than minimum balances required for fixed deposit accounts at the credit unions. Both credit unions pay higher rates on youth savings than Seylan Bank. Pethigodagedara PS and Bank of Ceylon pay the same rate of interest on youth savings while Kirimetiyana pays one point lower. It appears that these banks are accessible for passbook savings services to many of the same people that are served by credit unions; however, the rates tend to be lower. These banks do not offer the members of credit unions access to credit as the credit unions do. Kirimetiyana PS and Pethigodagedara PS offer the microenterprise, housing, consumer, agriculture and instant loans as previously mentioned. More noticeably different than the interest rates charged on loans between the credit unions and the banks, are the larger loan sizes offered by banks and the more stringent conditions for borrowing such as mortgages and proof of monthly income. Both of the large banks have national networks and have a wider array of savings products and credit products, yet high minimum balances required for savings accounts and large minimum loan sizes backed by collateral in many cases would prevent a typical Sri Lankan credit union member from gaining access to these services. The comparison of two primary societies with banks highlights the important role that Sri Lankan credit unions play in providing low-income people with access to interest-bearing microsavings accounts and to small amounts of credit. 5

8 I. ROADMAP This case study examines the outreach and performance of primary societies (credit unions) in Sri Lanka. In the first volume of her recently published book, The Microfinance Revolution: Sustainable Finance for the Poor, Marguerite Robinson asserts that credit unions tend to lend mainly to middle-class salaried borrowers. 4 The depth of outreach of these credit unions, using average and median loan and deposit sizes as proxies for income levels, disproves the applicability of Robinson s statement to the credit unions providing microfinance services to poor and low income Sri Lankans. The main focus of this analysis is on the outreach and performance of two primary societies, Kirimetiyana PS and Pethigodagedara PS. Section II provides a general overview of the credit union system in Sri Lanka. Section III assesses the outreach of credit unions savings and loan services. First, this outreach section briefly discusses the consolidated outreach of the 72 primary societies that have been involved in varying degrees with a World Council of Credit Unions, Inc. (WOCCU) institutional strengthening program ( ) sponsored by the Sri Lanka Mission of the US Agency for International Development (USAID). In-depth analysis of the outreach of Kirimetiyana and Pethigodagedara credit unions follows the discussion of the consolidated credit union outreach. After examining the outreach of the consolidated and the individual credit unions, Section IV reviews the financial performance of the consolidated credit unions and the two individual credit unions. The discussion focuses on an examination of 13 key financial indicators of the WOCCU PEARLS Performance Monitoring System recorded annually from 1998 to Section V considers the savings and loan products and terms of the two case study credit unions vis-à-vis those of some of their stated competitors. Section VI closes the paper with brief conclusions and a policy recommendation. Sri Lanka is a predominately rural country. More than three-fourths (76.7%) of its 19 million inhabitants live in rural areas 5. The majority of the credit unions affiliated with the WOCCU technical assistance program, including Kirimetiyana and Pethigodagedara, are located in rural areas in the North West and North Central Provinces of Sri Lanka. Around the world, WOCCU, employing its model credit union methodology, traditionally works intensively with credit unions. The project design of the Sri Lanka credit union strengthening program had a much broader scope of approximately 75 credit unions and therefore less involvement with individual credit unions. Kirimetiyana and Pethigodagedara are credit unions that have received a majority share of training from the in-country Institutional Development Unit (IDU) since these credit unions are two of 23 credit unions which have received bimonthly technical assistance visits since late These two credit unions received training in accounting, policies and procedures, delinquency and collections, PEARLS and strategic planning. II. CREDIT UNIONS IN SRI LANKA: THE SANASA MOVEMENT LEGAL FRAMEWORK The legal framework that authorizes Sri Lankan credit unions or primary societies to operate as financial intermediaries consists of the Cooperative Societies Law of 1972 and its two ensuing amendments (1983 and 1992). In order to operate, each credit union must register with the Register or Commissioner of Cooperative Development. Credit unions can opt for a limited or an unlimited liability structure: limited 4 Robinson, Marguerite S. The Microfinance Revolution: Sustainable Finance for the Poor, May 2001, The World Bank, Washington, DC, p The World Bank Group s World Development Indicators 2001 and The World Bank Sri Lanka Country Brief 2000 are available for reference at 6

9 means that members liability is restricted to their share capital. Individuals are eligible for full membership in credit unions at age eighteen. Credit unions in Sri Lanka are typically community-based credit unions. A credit union can serve individuals that live, work, or own real estate in the geographic area defined by the credit union s bylaws. Credit unions are regulated by the Government of Sri Lanka s Ministry of Cooperatives and the Cooperative Development Department within the Ministry. By law, it is the responsibility of the Registrar of Cooperative Development to audit registered credit unions once per year. As of 1992, the amended law gives the Registrar the authority to replace the board of a troubled credit union with an interim board and the Registrar may also dissolve a credit union under certain conditions. Also since 1992, government officials have been prohibited from serving on the boards or credit committees of primary societies. In addition to mobilizing savings from their members, credit unions have the legal right to provide savings services to minors and to adult non-members. STRUCTURE & SCALE The Federation of Thrift and Credit Cooperative Societies of Sri Lanka, more commonly known as SANASA (the FTCCS acronym in Sinhala) is the national federation of Sri Lankan credit unions. In Sri Lanka, there are three tiers of the credit union system: the top tier, the national federation; the second tier, the district unions; and the third tier, the primary societies or credit unions. The modern SANASA movement began its revitalization in 1979 under the leadership of Mr. P.A. Kiriwandeniya, the head of the national federation. At year-end 2000, more than 8,400 primary societies provided one million members with savings and credit and an additional undocumented number of non-member clients with microsavings services. This report focuses on the activities at the credit union or primary society level. OVERVIEW OF WOCCU/SANASA CREDIT UNION STRENGTHENING PROJECT The World Council of Credit Unions, Inc. (WOCCU) in conjunction with its local partner, SANASA, has worked to strengthen the performance and increase the outreach of a small subset (72) of primary societies. The intent of the technical assistance has been to bolster the credit unions capacity to provide microsavings and microcredit services to poor people. This work has been supported by the US Agency for International Development (USAID) in the amount of $710,000 from February 1998 through September The Institutional Development Unit (IDU), a Sri Lankan technical unit created within the national federation structure supported by WOCCU, has worked with four groups of primary societies (the groups designate the time of entry into the strengthening program). The 23 credit unions in Group 1 began receiving bimonthly technical assistance visits and/or attending training seminars in the fourth quarter of The institutional strengthening activities have been aimed at convincing credit unions to improve their operations by adopting a business focus and improving internal operations such as credit administration; by upgrading the technical skills of credit union staff and managers; and by introducing marketing and savings mobilization techniques. BACKGROUND ON KIRIMETIYANA & PETHIGODAGEDARA PRIMARY SOCIETIES Kirimetiyana PS Kirimetiyana credit union was registered in 1992 with 18 members. The credit union is managed by four women and governed by seven men. Kirimetiyana joined the WOCCU Sri Lanka project in late Originally, Kirimetiyana PS was registered as an unlimited liability society; however, it converted to a limited society in 1999 so that it could expand its membership. 7

10 The manager and board estimate the composition of the primary economic activity of its members as 50% agriculture day laborers, 30% public employees and 20% self-employed business people. They classify 90% of the membership as low income. The 50% of the agriculture wageworkers labor in the local coconut fiber and tile mills where they can earn a maximum of 3000 rupees ($37.50) per month or $450 per year (55% of GNP per capita). The board estimates that most of the day laborers and many of the public employees borrow for their personal rice paddies or for small-scale coconut production using the instant loan mechanism. In order to join the credit union, an individual must buy a 100 rupee share ($1.25) and agree to save 50 rupees ($0.63) per month. The Board, elected by the General Assembly, meets weekly. The General Assembly meets on a monthly basis to approve procedures. Pethigodagedara PS This primary society was founded in 1959 as an unlimited liability society to serve the rural village of Pethigodagedara. In 1959, moneylenders were the primary providers of financing because banks were too far away. The credit union converted to a limited liability society in The credit union is run by three staff (woman manager) and seven directors (six men and one woman director). In order to join the credit union, besides meeting the criteria of living or working in one of the three villages, a person is required to pay 300 rupees ($3.75) for one share, 145 rupees ($1.80) for admission and application fees, and commit to save a minimum of 100 rupees ($1.25) per month. Per the estimates of the manager and the board members, 60% of the membership is involved in agriculture and small and micro agribusiness, 10% in non-agriculture microenterprise, 25% are daily agriculture wageworkers, and 5% are public employees. Sri Lanka is a highly literate country, with adult illiteracy for males estimated at 5.7% and for females at 11.7% 6. According to the staff, the membership is 100% literate and an estimated 90% of members have a high school education. III. OUTREACH SAVINGS OUTREACH: AN OVERVIEW FOR ALL WOCCU PROJECT PRIMARY SOCIETIES In terms of scale, individual Sri Lankan credit unions are very small, rarely numbering over 500 members per primary society. In addition to their members, these credit unions serve non-member clients (adults and youth) that receive savings services only. The credit unions are small, in part due to legal constraints. As mentioned, there are two legal structures for all cooperatives (including credit unions), limited or unlimited liability registration. If a credit union is unlimited, then its membership is restricted to a limited geographical community, typically one to three small villages. The limited liability credit unions have more flexibility in broadening their fields of membership; however, it was only in July 1999 that several Cooperative Development Commissioners issued a circular granting special access for those unlimited primary societies that wanted to convert to limited societies in an expeditious manner. 7 As of December 31, 2000, there were 72 credit unions serving 26,424 members participating in the WOCCU Sri Lanka project. These 72 credit unions had mobilized $3,706,036 in savings by year-end In December 1998, 70 partner credit unions had mobilized $2,628,881 in savings 8. This two-year period reveals an increase of 41% in the volume of savings and reflects the intent to encourage savings mobilization. In December 2000, there were three member savers (63,947) for every member borrower (21,228). 6 The World Bank Group. World Development Indicators Available for reference at 7 Grace, David and Kitsch, Lois, WOCCU Sri Lanka Mid-Term Evaluation, November 1999, pp Statistical Report for USAID prepared by WOCCU on SANASA Primary Societies

11 There were 52,597 savings deposit accounts in 70 partner credit unions in December The number of accounts had increased by 19.3% to 63,947 deposit accounts in 72 partner credit unions in December These credit unions are providing microsavings services. The average deposit size per member is $139; however, this figure does not take into account hundreds if not thousands of nonmember clients and youth savers. The average deposit size per number of deposit accounts increased slightly from $50 in 1998 to $58 in SAVINGS OUTREACH: AN IN-DEPTH EXAMINATION OF TWO PRIMARY SOCIETIES Scale Kirimetiyana PS served 627 clients (441 members, 50 non-members, and 136 youths) in December It has increased its membership by 55% from 284 in December There are 5,000 people that reside in rural Kirimetiyana. The adults living and working in this small town are the potential field of membership for Kirimetiyana. Kirimetiyana has 879 deposit accounts that belong to members, non-member clients and youth under the age of eighteen. Since Kirimetiyana served a total of 627 clients on December 8, 2000, the fact that there are 879 deposit accounts illustrates that there are members-clients that have multiple savings accounts; for example, a passbook account and a compulsory savings account. The most popular account is the passbook savings. The chart below illustrates that the number of accounts is concentrated in passbook and compulsory savings (mandatory deposits of $.63 per month earn 9% interest as of December 2000) while the majority of deposit volume is concentrated in fixed deposits. The average deposit size at Kirimetiyana PS per member-client is $112 dollars, representing 14% of GNP per capita. It is interesting to note in the chart below that the average size per savings product differs substantially from the median size of each savings product. This trend is indicative of large numbers of microsavings accounts and smaller numbers of larger savings accounts that increase the average savings deposit size. 9

12 KIRIMETIYANA PS 12/08/00 TYPES OF SAVINGS Compulsory Passbook Fixed Youth DEPOSIT ACCOUNTS TOTAL Number of Deposit Accounts % of Total Number 38.1% 40.3% 6.1% 15.5% 100% Volume of Total $5,619 $24,288 $39,157 $1,260 $70,325 % Volume of Total 8.0% 34.5% 55.7% 1.8% 100% Average Deposit Size per $17 $69 $725 $9 Product Median Deposit Size per $14 $23 $233 $0.90 Product Average Deposit Size per $80 Number of Deposit Accounts Average Deposit Size per $112 Member-Client (627 clients) Average Deposit Size per 14% Member-Client/GNP per Capita* *GNP per capita is $820 per The World Bank Group s World Development Indicators Pethigodagedara PS served 600 members at year-end 2000, in addition to 325 non-members and 260 youths. Pethigodagedara serves three villages with a total population of 1500 people. Given that only residents or people working in the three villages can be members (non-resident clients can be offered savings services), the penetration rate of the credit union is substantial, over 30% of members. Pethigodagedara illustrates a less marked concentration of savings volume in fixed deposits than Kirimetiyana. Pethigodagedara has a larger membership and a higher compulsory savings requirement per member than Kirimetiyana (100 rupees or $1.25 per month that earned 8% interest as of December 2000); therefore, it has a larger concentration of volume in the compulsory savings category than the passbook savings. Pethigodagedara served 1185 member-clients in December Given that there are 1928 deposit accounts, there are members-clients that have multiple savings accounts; for example, a passbook account and a compulsory savings account. The average deposit size per member-client (including members, non-members and youth) is $97 or 12% of GNP per capita. Pethigodagedara also displays the trend that the average size of deposits of each savings product is significantly higher than the median. 10

13 PETHIGODAGEDARA PS 12/12/00 TYPES OF SAVINGS DEPOSIT ACCOUNTS Compulsory Passbook Fixed Youth TOTAL Number of Deposit Accounts % of Total Number 53.48% 30.45% 2.59% 13.49% 100% Volume of Total $43,093 $33,463 $29,875 $9,004 $115,435 % Volume of Total 37.33% 28.99% 25.88% 7.80% 100% Average Deposit Size per Product $42 $57 $597 $35 Median Deposit Size per Product $31 $8 $250 $16 Average Deposit Size per Number of Accounts Average Deposit Size per Member- Client (1,185 Member-Clients) Average Deposit Size per Member- Client/GNP per Capita* *GNP per capita is $820 per The World Bank Group s World Development Indicators Kirimetiyana PS, registered in 1992, is a young credit union compared to many of the other primary societies affiliated to the WOCCU Sri Lanka project. Most of the project credit unions have been registered for at least fifteen years. Members of the age group have the largest number of deposit accounts (34%) and hold 20% of the volume of savings in Kirimetiyana PS while the age group has 25% of the number of accounts and holds the largest volume of savings deposits (32%). Looking at the number of accounts, vis-à-vis the volume of accounts, the age group that has 17.1% of the number of accounts holds the largest proportional volume of savings (29.6%). Similarly, the 65+ age group holds 8% of the accounts that represent 16% of the savings volume. The youth accounts that comprise 15% of the number of accounts make up only 1.8% of the volume of accounts. DEPOSIT ACCOUNTS BY AGE GROUPS Number of Accounts Compulsory KIRIMETIYANA PS 12/08/00 Passbook Fixed Youth $60 $97 12% Total US$ $0 $0 $0 $1,260 $1, $2,163 $8,893 $3,002 $0 $14, $1,818 $7,694 $13,239 $0 $22, $1,505 $5,052 $14,287 $0 $20, $134 $2,649 $8,629 $0 $11,412 Total 879 $5,619 $24,288 $39,157 1,260 $70,325 In Pethigodagedara PS, registered in 1959, the age group makes up the bulk of the credit union s number of accounts (37%) and volume of savings deposits (40%). This group is followed by the age group that has almost as many accounts (32%), but less of the deposit volume (25%). The age group comprises 12% of the number of accounts yet it has 19% of the deposit volume. Youth accounts make up 13% of the number of accounts and 8% of the deposit volume. 11

14 DEPOSIT ACCOUNTS BY AGE GROUPS Number of Accounts Compulsory PETHIGODAGEDARA PS 12/12/00 Passbook Fixed Youth Total US$ $0 $0 $0 $9004 $ $14,121 $11,370 $3,350 $0 $28, $19,166 $11,435 $15,706 $0 $46, $6,215 $8,356 $7,669 $0 $22, $3,592 $2,302 $3,150 $0 $9044 Total 1928 $43,093 $33,463 $29,875 $9004 $115,435 *Row and Column totals off by one dollar in certain cases due to rounding and exchange rate conversion. This breakdown by age groups demonstrates the life cycle patterns of savers. In their younger years, members are investing in their businesses, improving their homes, raising families and are not saving as much as the older members who are more established and whom need to set aside money for old age when they will no longer be working. Both credit unions are providing people of all ages, at different stages in the life cycle of financial needs, with access to microsavings services. Gender Kirimetiyana PS had 441 members at year-end Women members form the majority in the credit union. There were 224 women (51%) and 217 men (49%) members in December Of the 879 deposit accounts, 472 deposit accounts corresponded to women (54%) and 407 accounts belonged to men (46%). At Kirimetiyana PS, men have less of the numbers of deposit accounts; however, they have slightly more of the savings volume than the women. Women s savings make up 47% of the total savings volume. The gender difference is most noticeable in the fixed deposit product where men have 58% of the savings volume of the fixed deposits. The fixed deposits have an average size of $725 and a median size of $233. This difference reflects the results of Kirimetiyana PS s marketing efforts in the last two years to attract the savings of successful entrepreneurs in the Kirimetiyana town. KIRIMETIYANA PS DEPOSITS BY GENDER MEN WOMEN TOTAL 12/08/00 Number of Deposit Accounts Percentage of Number of Accounts 46.3% 53.7% 100% Volume of $37,488 $32,836 $70,325 Percentage of Volume of 53.3% 46.7% 100% 12

15 DEPOSIT ACCOUNTS BY GENDER Number of Accounts Compulsory KIRIMETIYANA PS 12/08/00 Passbook Fixed Youth Total US$ Men 407 $2,622 $11,622 $22,585 $660 $37,488 Women 472 $2,997 $12,666 $16,573 $600 $32,836 Total 879 $5,619 $24,288 $39,157 $1,260 $70,325 *Row and Column totals off by one dollar in certain cases due to rounding and exchange rate conversion. Pethigodagedara PS had 600 members, 312 (52%) were women and 288 (48%) were men as of December Of the 1928 total deposit accounts, 62% of these corresponded to women, while men had 38% of the number of accounts. In the case of Pethigodagedara, the percentages of the number of accounts and the volume of deposit accounts are almost identical. Pethigodagedara differs from Kirimetiyana additionally in the sense that women are the dominant savers in the fixed deposits category. Women s deposits make up 64% of the volume of fixed deposit savings. At Pethigodagedara PS, the average size fixed deposit account is $597 and the median fixed deposit account size is $250. PETHIGODAGEDARA PS DEPOSITS BY GENDER MEN WOMEN TOTAL 12/12/00 Number of Deposit Accounts Percentage of Number of Accounts 38.0% 62.0% 100% Volume of $44,260 $71,176 $115,435 Percentage of Volume of 38.3% 61.7% 100% DEPOSIT ACCOUNTS BY GENDER Number of Accounts Compulsory PETHIGODAGEDARA PS 12/12/00 Passbook Fixed Youth Total US$ Men 732 $14,636 $14,618 $10,674 $4331 $44,260 Women 1196 $28,458 $18,845 $19,201 $4676 $71,176 Total 1928 $43,093 $33,463 $29,875 $9,004 $115,435 *Row and Column totals off by one dollar in certain cases due to rounding and exchange rate conversion. Depth As has already been suggested by the brief discussion of the depth of outreach of the 72 consolidated credit unions, Kirimetiyana PS and Pethigodagedara PS confirm the depth of outreach of microsavings services that these credit unions offer to poor and low income members and clients. Both credit unions are employing the strategy of attracting new savers that have the capacity to save larger amounts so that the credit unions can decrease the transaction costs they incur from predominately serving interestbearing microsavings accounts that are less than $25. 13

16 By paying competitive interest rates, particularly on fixed deposits, both credit unions have been able to mobilize a few, 30 and 34 respectively, fixed deposit accounts greater than $500. These larger accounts spread fixed costs over larger volume and reduce the costs of serving small accounts. At Kirimetiyana PS, 88% of the deposit accounts are for amounts less than $100. While these small accounts make up only 21% of the volume of deposit accounts, a mere 4.5% of accounts larger than $300 make up 64% of the savings volume. KIRIMETIYANA PS DEPTH OF SAVINGS OUTREACH: 12/08/00 Number of Deposit Accounts Percentage of Number of $0-25 $25-50 $ $ $ >500 TOTAL % 12.7% 9.8% 7.2% 1.1% 3.4% 100% Deposit Accounts Volume of $4,687 $4,019 $5,849 $10,629 $4,095 $41,045 $70,325 Percentage of Volume 6.7% 5.7% 8.3% 15.1% 5.8% 58.4% 100% SIZE DISTRIBUTION OF DEPOSIT ACCOUNTS Number of Accounts Compulsory KIRIMETIYANA PS 12/08/00 Passbook Fixed Youth Total US$ $0-$ $3,012 $1,208 $71 $395 $4,687 $ $1,806 $1,630 $128 $455 $4,019 $50-$ $802 $4,441 $513 $94 $5,849 $100-$ $0 $8,675 $1,639 $316 $10,629 $300-$ $0 $2,940 $1,156 $0 $4,095 $ $0 $5,395 $35,651 $0 $41,045 Total 879 $5,619 $24,288 $39,157 $1,260 $70,325 *Row and Column totals off by one dollar in certain cases due to rounding and exchange rate conversion. At Pethigodagedara PS, 90% of the savings accounts are for amounts less than $100. These small accounts make up 38% of the volume of deposit accounts, while only 3% of accounts larger than $300 make up 43% of the savings volume. The disparity between the distribution of accounts by size and the volume distribution is less dramatic than at Kirimetiyana PS, yet is still notable and reflects the trend of serving a diverse membership in order to lower transaction costs. PETHIGODAGEDARA DEPTH OF SAVINGS OUTREACH: 12/12/00 Number of Deposit Accounts Percentage of Number of $0-25 $25-50 $ $ $ >500 TOTAL % 20.9% 14.3% 7.1% 1.2% 1.8% 100% Deposit Accounts Volume of $9,723 $15,227 $18,403 $22,295 $9,103 $40,688 $115,435 Percentage of Volume 8.4% 13.2% 15.9% 19.3% 7.9% 35.3% 100% 14

17 SIZE DISTRIBUTION OF DEPOSIT ACCOUNTS Number of Accounts Compulsory PETHIGODAGEDARA PS 12/12/00 Passbook Fixed Youth Total US$ $0-$ $5022 $2989 $247 $1465 $9,723 $ $11,983 $1714 $50 $1480 $15,227 $50-$ $13,376 $2770 $184 $2073 $18,403 $100-$ $10,907 $6636 $1313 $3439 $22,295 $300-$ $1,806 $4253 $3044 $0 $9,103 $ $0 $15,102 $25,038 $548 $40,688 Total 1928 $43,093 $33,463 $29,875 $9004 $115,435 *Row and Column totals off by one dollar in certain cases due to rounding and exchange rate conversion. LOAN OUTREACH: AN OVERVIEW FOR ALL WOCCU PROJECT PRIMARY SOCIETIES Paralleling the growth of 40% of savings volume, the gross loan portfolio of the 72 primary societies increased 44% from $2,387,360 in December 1998 to $3,447,248 in December Credit unions did not track the total number of loans outstanding in 1998; however, the number of loans outstanding had increased 31.5% from December 1999 (16,132 loans) to December 2000 (21,228 loans). The average loan size outstanding in 2000 was $162. With GNP per capita estimated at $820 for 2000, the average loan size of $162 in 2000 represents 20% of GNP per capita. This average loan size is slightly smaller than the average loan size outstanding of $166 in The loan portfolio, as the savings portfolio discussed above, suggests that the Sri Lankan credit unions serve the poor with microfinance services. LOAN OUTREACH: AN IN-DEPTH EXAMINATION OF TWO PRIMARY SOCIETIES Scale & Loan Purpose Kirimetiyana PS had 221 loans granted on its books on the day of the author s site visit in December The fact that Kirimetiyana serves clients that can save only (50 non-member savers) and offers youth savings services (136 accounts) helps to provide the credit union with the resources to finance its lending portfolio. In total there are roughly three savers (627) for each one borrower (221). There are 441 members that have the right to borrow and save; thus, the member savers to member borrowers ratio is 2:1. The average loan size granted is $444 and the median loan size granted is $ at Kirimetiyana PS in December The average loan size granted is 54% of GNP per capita and the median loan size granted is 38% of GNP per capita. These loan sizes are larger than the consolidated 72 credit union average loan size outstanding of $162 for December These larger loans may be indicative of more flexible loan products that meet the size demands of member borrowers. Many of the primary societies in Sri Lanka have yet to adopt savings driven growth and continue to rely on shares for financing portions of their loan portfolios. Often these same credit unions do not have the liquidity to fund larger loan sizes. KIRIMETIYANA PS 12/08/00 Average Loan Size Median Loan Size 9 Statistical Report for USAID prepared by WOCCU on SANASA Primary Societies NOTE: The loan information available for both Kirimetiyana PS and Pethigodagedara PS is on loans GRANTED and not loans OUTSTANDING. Outstanding balances are naturally smaller than the full loan size granted, yet the Microfinance Industry typically reports on loan portfolios using outstanding balances. 15

18 LOANS GRANTED US $ 12/08/00 12/08/00 Number of Loans 221 $444 $313 Volume of Loans $98,119 Average Loan Size/GNP per capita* 54% Median Loan Size/GNP per capita 38% *GNP per capita is $820 per The World Bank Group s World Development Indicators Both Kirimetiyana PS and Pethigodagedara PS have diverse loan portfolios -- their portfolios have a mix of microenterprise, consumer, housing and agriculture loan purposes in both the number of loans and the volume of the loan portfolio that these loans represent. Kirimetiyana has four loan purposes recorded on its books: a) consumer; b) business/microenterprise; c) instant; and d) housing. The purpose of the small-sized instant loans (three times the amount of a member s savings account at 4% per month for no more than four months) is not recorded at the credit union. The Manager estimates that most of the instant loans are for agriculture or ag-related microenterprise. Kirimetiyana, as mentioned earlier, has at least 50% of its members that work as day laborers in the coconut mills and tile production businesses that dominate the economy of the local area. In terms of the number of loans, consumer loans are the most prevalent at 43% followed by instant loans at 28% and microenterprise at 27%. While microenterprise business loans are 27% of the number of loans, they represent 61% of the loan portfolio volume. The loan portfolio volume is dominated by microenterprise loans. KIRIMETIYANA PS LOAN PURPOSE 12/08/00 Business/ MicroE Housing Consumer Instant* Total Number of Loans Percentage of Number of 27.1% 1.4% 43.4% 28.1% 100% Loans Volume of Loans $59,625 $3,375 $23,103 $12,016 $98,119 Percentage of Loan 60.8% 3.4% 23.6% 12.2% 100% Portfolio Average Loan Size $994 $1,125 $241 $194 Granted per purpose *The purpose of the Instant loan category is not known. Management estimates that purposes include agriculture and agribusiness, commercial, and consumer purposes. Pethigodagedara PS had 625 loans granted on its books when the author visited in December Pethigodagedara serves a notable number of adult clients that save only (325 non-member savers) and offers youth savings services (260 accounts). These savings help to provide the credit union with the resources to finance its lending portfolio given that Pethigodagedara does not have any external credit. In total there are roughly two savers (1185) for each loan granted (625). There are 625 loans granted yet there are only 600 members at Pethigodagedara PS and presumably not all members have loans. These numbers point to the fact that some members have been granted multiple loans; for example, microenterprise and home improvement. The average loan size granted at Pethigodagedara PS was $270 while the median loan size granted was $184 in December The average loan size granted is 33% of GNP per capita and the median loan size is 22% of GNP per capita. These loan sizes are smaller than Kirimetiyana PS even though the largest loan size possible at Kirimetiyana is $2500 and the largest loan size possible at 16

19 Pethigodagedara is $5625. In fact, there is only one loan granted on the books at Pethigodagedara for this maximum loan size of $5625 (for a self-employed business purpose). PETHIGODAGEDARA PS 12/12/00 LOANS GRANTED US $ Average Loan Size Median Loan Size Number of Loans 625 $270 $184 Volume of Loans $ $168,971 Average Loan Size/GNP per capita 33% Median Loan Size/GNP per capita 22% *GNP per capita is $820 per The World Bank Group s World Development Indicators There are five loan purposes recorded at Pethigodagedara PS: a) microenterprise/business; b) instant; c) housing; d) instant; and e) consumer. In contrast to Kirimetiyana PS that had the largest number of loans in the consumer purpose, at Pethigodagedara PS consumer loans make up only 5% of the number of loans. At Pethigodagedara PS, microenterprise business loans are 47% of the number of loans and they represent 67% of the loan portfolio volume. PETHIGODAGEDARA LOAN PURPOSE 12/12/00 Agriculture Business/ MicroE Housing Consumer Instant* Total Number of Loans Percentage of Number 6.6% 46.6% 18.7% 5.1% 23% 100% of Loans Volume of Loans $2,806 $112,911 $29,238 $2,962 $21,054 $168,971 Percentage of Loan 1.6% 66.8% 17.3% 1.8% 12.5% 100% Portfolio Average Loan Size $68 $388 $250 $93 $146 Granted per purpose *The purpose of the Instant loan category is not known. Management estimates that purposes include agricultural, commercial, and consumer purposes. Gender Differing slightly from the characteristics of the savings portfolio by gender, in both Kirimetiyana PS and Pethigodagedara PS the percentage of the number of loans parallels the volume of the loan portfolio by gender. Women in both credit unions have the majority of the number of loans and a majority of the loan portfolio volume. At Kirimetiyana PS, women hold 56% of the number of loans granted and these loans represent 55% of the loan portfolio volume. KIRIMETIYANA PS LOAN PORTFOLIO BY GENDER* MEN WOMEN TOTAL 12/08/00 Number of Loans Percentage of Number of Loans 44% 56% 100% Volume of Loans $44,225 $53,894 $98,119 Percentage of Loan Portfolio Volume 45% 55% 100% *All Loan Portfolio information in this report refers to Loans Granted not Loans Outstanding. 17

20 At Pethigodagedara PS, women hold 59% of the number of loans granted and these loans represent 58% of the loan portfolio volume. MEN WOMEN NOT REPORTED TOTAL PETHIGODAGEDARA PS 12/12/00 LOAN PORTFOLIO BY GENDER* Number of Loans Percentage of Number of Loans 41.1% 58.7% 0.2% 100% Volume of Loans $70,568 $98,154 $249 $168,971 Percentage of Loan Portfolio Volume 41.8% 58.1% 0.1% 100% *All Loan Portfolio information in this report refers to Loans Granted not Loans Outstanding. Depth Like the savings portfolio, the loan portfolios at both Kirimetiyana and Pethigodagedara credit unions signals depth outreach. At Kirimetiyana PS, the loan sizes range from $12.50 to $2500. At Pethigodagedara PS, the loan sizes range from $12.50 to $5625. At Kirimetiyana PS, loans granted for amounts less than $300 are 46% of the number of loans. Three-fourths (77%) of the loans are for less than $500. Kirimetiyana is an example of where a few loans (16% of the number of loans) total more than $1000 and drive up the average loan size granted. The depth of the lending activities can be hidden if one does not examine loan size distribution in addition to looking at average loan sizes. The median loan size of $313 is much more representative than the $444 average loan size granted. KIRIMETIYANA PS LOAN SIZE DISTRIBUTION: DEPTH OF OUTREACH* $1-300 $301- $501- $1,001- $2,001- Total 12/08/00 US$ 500 1,000 2,000 3,000 Number of Loans Percentage of Number of Loans 46% 31% 6.8% 12.2% 4% 100% Volume of Loans $11,059 $22,000 $10,625 $34,687 $19,748 $98,119 Percentage of Portfolio Volume 11.3% 22.4% 10.8% 35.4% 20.1% 100% *Loan size ranges from $12.50 to $2500 at Kirimetiyana PS. At Pethigodagedara PS loans granted for amounts less than $300 make up 69% of the number of loans. A total of 92% of the loans are for amounts less than $500. At Pethigodagedara only 50 of 625 loans granted are for amounts greater than $500. While 431 loans less than $300 represent 33% of the loan portfolio volume, 4 loans greater than $3000 represent 10% of the loan portfolio volume. PETHIGODAGEDARA PS LOAN SIZE DISTRIBUTION DEPTH OF $1-300 $ $501- $1,001- $2,001- >3,001 TOTAL OUTREACH* 12/12/00 1,000 2,000 3,000 Number of Loans Percentage of Number of 69.0% 23.0% 4.2% 3.2% 0% 0.6% 100% Loans Volume of Loans $55,638 $49,521 $20,750 $25,562 $0 $17,500 $168,971 Percentage of Loan 33% 29.3% 12.3% 15.1% 0% 10.3% 100% Portfolio *Loan size ranges from $12.50 to $5625 at Pethigodagedara PS. 18