MICROCAPITAL STORY: Are Microfinance Operations Boosting Asian Banks Against Financial Shocks?

The CEO and Managing Director of Sri Lanka’s Hatton National Bank, Rajendra Theagarajah, stated that large populations and microfinance in Asia have provided a “buffer” against the global financial crisis. An article in Sri Lanka’s Daily News reported on a speech Theagarajah gave at the Lanka Business Report-Lanka Business Online CEO Forum, stating that Asia has been able to withstand shocks to the global financial crisis due to a strong banking sector, the market available as a result of large populations, and investing in microfinance instead of focusing on subsidies. Theagarajah highlighted countries such as Cambodia, Indonesia and Bangladesh as having banks which have previously invested in microfinance and as a result have had extremely high profit margins. The banks to which he was referring were not identified, nor the role played by microfinance in any profit increases. He also stated that banks in Asia have adopted measures since the 1997 Asian Financial Crisis that are further protecting them from feeling strong negative impacts of the current crisis.

The Lanka Business Report-Lanka Business Online CEO Forum, more commonly known as the LBR-LBO CEO Forum, was initiated with an objective of providing a forum for senior corporate citizens to discuss topical business and economic issues. The LBR-LBO CEO Forum has evolved into an event that senior executives and policy makers throughout Sri Lanka attend to discuss the business environment.

Hatton National Bank was created in 1888 as Hatton Bank to serve the tea industry in Sri Lanka and became known as Hatton National Bank in 1948 when it was bought out by Ceylon, Brown and Company Ltd., which restructured the bank to encompass a greater Sri Lankan participation than it had had previously. Its mission is to “combine entrepreneurial spirit with empowered people and leading edge technology to constantly exceed stakeholder expectations”. In June 2008, its assets stood at Rs. 238 billion (USD 2.17 billion). It formed the Gami Pubuduwa Scheme in 1989 to extend the bank’s assistance to rural areas and explore self-employment opportunities. Gami Pubuduwa has disbursed over Rs. 4 billion (USD 36 million) to over 500,000 people through over 70,000 small loans since its inception. It provides assistance for any income generating self employment activity up to Rs 1 million (USD 9 thousand) with a maximum repayment period of 4 years. There are 108 ‘Gami Pubuduwa’ rural banking units operating throughout the country. The present portfolio of Gami Pubuduwa scheme stands at Rs 2 billion (USD 18 million) serving 15,000 clients throughout the country. In addition to providing loans there is a total of approximately Rs 1 billion (USD 9 million) in rural deposits mobilized by the scheme.

This is one of the many predictions of the impacts of the global financial crisis on the economies and microfinance, of which MicroCapital has provided extensive coverage found in the Additional Resources below.

Additional Resources:

Daily News: “Strong banking sector has helped mitigate financial crisis – HNB CEO

Hatton National Bank: “Home” “Interim June 2008 Financial Report” “Microfinance

Lanka Business Online: “LBR-LBO CEO Forum

MicroCapital Excerpt: “Blogger Chronicles Effect of Financial Crisis on Indian Microfinance Institution’s Interest-Rates and Customer Service

MicroCapital Guest Editorial: “Global Credit Crunch Crushes Socially Responsible Investment in Microfinance?

MicroCapital Story: “Cambodia Microfinance Association Lowers Microfinance Growth Targets Due to Effects of Global Credit Crunch

MicroCapital Story: “How Far Will the Credit Crunch Affect the Microfinance Industry?

MicroCapital Story: “Bill Clinton Extols Microfinance Amid Global Credit Crisis at 2008 Clinton Global Initiative Summit

MicroCapital Story: “New Insights Into The Impact of The Global Credit Crisis Envisage A Slow in Growth for Microfinance According to Reuters, World Bank, ACCION and YES Bank

MicroCapital Story: “New Microfinance Foreign Exchange Risk Management Group, Cygma, Believes Credit Crunch Provides Business Opportunity

MicroCapital Story: “Germany’s Savings Bank Foundation for International Corporation (SBFIC) Lends an Additional USD 6.9 Million in Microfinance Funds to Hatton National Bank of Sri Lanka for Tsunami

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