ANALYSIS OF SOCIAL AND INSTITUTIONAL MECHANISMS EMPLOYED BY A COMMUNITY BASED ORGANIZATION IN MANAGING ITS LOAN PORTFOLIO

Sri Lankan micro-finance services have a wide geographical outreach. However, the extent of outreach of private operators, Non-Governmental Organizations (NGOs) and commercial banks in rural areas is rather limited. A wide range of institutions viz: co-operative societies, numerous local and international NGO’s, commercial and development banks etc are involved in providing microfinance services. Repayment of loans is crucial for the success of such operations. Lenders have developed various institutional mechanisms to mitigate the risk of default. Sewa Finance is a Microfinance institution, affiliated to Sewa Lanka Foundation. It lends to Community Based Organizations (CBOs) with the objective of improving the income earning capacity of members through self employment activities. The overall objective of the study was to study the social and institutional mechanisms of the CBOs with the aim of improving the management of loan portfolio. Facilitating the livelihood improvement of the poor CBO members was focused. Galle District was selected for the study. Sewa Finance had been in operation with 56 CBO’s for over two and half years, disbursing loans amounting to Rs 35 Mn. Four CBO’s were selected on stratified random sampling, based on performing quality of their loan portfolios. Sixty beneficiaries were selected from these four CBO’s. Data collection of respondents was done through a questionnaire survey and the CBO leaders and Sewa Finance Officials were interviewed. Respondents were engaged in a number of livelihood activities related to production, marketing and services. Major social and institutional factors relating to CBO’s function were sought. Strengths and weaknesses of the existing credit appraisal were noted. Factors and group dynamics in managing and organizing a CBO for similar ventures were assessed. Steps to establish a system to improve the social and institutional mechanisms of CBO’s for improved performances had been suggested. Key Words: Microfinance, Community based organizations, Empowerment, Social, and InstitutionalFor full paper: fmscresearch@sjp.ac.l