“Applied Study on Local Finance for Urban and Peri-Urban ... finance for urban and... · Urban...
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JMUK Jayasinghe, 2009 | Confidential
“Applied Study on Local Finance for
Urban and Peri-Urban Producers” - Gampaha
Final Report Submitted to
Dr. Priyanie Amerasinghe
(Regional RUAF Coordinator)
By
J. M. Udith K. Jayasinghe, PhD
(Expert Consultant) Dept. of Agribusiness Management
Faculty of Agriculture & Plantation Management
Wayamba University of Sri Lanka Makandura, Gonawila (NWP)
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EXECUTIVE SUMMARY
The aim of this study was to provide information, knowledge and clear
recommendations that will serve to broaden collective and individual financing opportunities for urban poor and peri-urban producers located in the RUAF partner city
of Gampaha. The specific objectives of it were: (1) identification and assessment of current practices of institutions and programs that finance urban agriculture; (2)
identification of the needs and demands for finance from urban poor engaged in urban agriculture, agro-processing or marketing; (3) proposal and recommendations to facilitate the access of small-scale urban producers to finance.
In order to achieve these objectives, a two-phased, but concurrently executed,
multidisciplinary structured survey based methodology was adopted, which included an extensive review of existing literature, identification and formulation of separate
sampling frameworks and the development of appropriate interview schedules, aiming at financial institutions (FIs) and urban agricultural producers (UAPs). The responses to each question included in the Interview Schedules for the FIs and UAPs were analyzed,
individually and collectively (i.e. cross comparisons / compare and contrast). In the process of selecting the most suitable financial intermediary, a “Step-wise Elimination
Procedure” was followed by considering the characters/features of the FIs, responsiveness
to the issues raised by the consultants with regard to their ability and willingness towards
financing UA and the requirements/demands from the UAPs.
We found that most of the existing FIs showed “positive attitude” and/or “sympathy”
towards the agricultural activities/communities, in general. Nevertheless, when it comes to the issue of access to their credit / loan / other financial support schemes, small-scale
agriculture does not take a prominent place. Similarly, the awareness of those FIs, in general, regarding urban agriculture was also limited. We have observed wide variation between the different types of financial institutions with regard their willing to participate
in financing UA (State Banks and Cooperatives more willing, while Private Institutions less willing to involve). When inquired from the FIs as to the reasons for not willing to
finance UA or agriculture in general, many common reasons emerged as being bottlenecks. High rates of default, together with the high risk involved in financing small
to medium-scale agricultural projects, was a recurring theme in the discussions. Another issue raised by some was that farmers „lack the motivation for repayment‟. The more eager and potential entities such as SANASA City Bank (SCB), People’s Bank (PB) and
Wayamba Development Bank (WDB) were willing to partner with an external body to
formulate and implement strategies and programs for financing UA. However, the
respondents raised issues such as the independence of the intermediaries and the administrative cost (i.e. evaluation, monitoring and repayment-collection) of such
programs.
Certain institutions such as SEEDS and CIC Agri Businesses (Urban Agricultural Division)
emerged as those that were able to provide other forms of services such as training and workshops on special topics of interest for the UAPs. We have noticed that the UAPs
have mainly utilized their “own funds and savings” for agricultural practices, with virtually none having accessed formal sources for this purpose. Further, informal sources
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have been tapped by a few as well. The reasons for this vary among the respondents. A primary element being that, Formal FIs are “strict” and project an “unfriendly
environment” towards growers. Complains extend to the limit that they are unaware of any suitable financial product and/or its providers. Another interesting personal issue for
the UAPs was about their “dignity and self-respect” in relation to obtaining funds from these institutions; some of the growers raised this issue, indicating that they feel “uncomfortable” when accessing a FI such as a reputed public/private bank to obtain
loans for their agricultural activities. The responses from the UAPs, with regard to a „suitable‟ financial package for their venture, were symptomatic of the need for
flexibility, both in relation to obtaining financial support and paying it back.
The UAPs requested other forms of assistance from intermediaries such as training, both
technical and business related skills. Here the responses made feel that strong focus needs to be made, especially with regard to a proper extension / technical (agronomical / crop
management) support system. Furthermore, other forms of skill development were preferred (e.g. entrepreneurial, leadership, marketing). We would like to suggest both
public and private “Licensed Commercial Banks” (LCBs) and public “Licensed Specialized Banks” (LSBs) over the private LSBs, “Finance Companies” and “Other
Potential Institutions”, excluding the SEEDS. Out of the private LCBs, both Commercial
Bank (CB) and Sampath Bank (SB) have the potential to finance, but SB is leading. Out of
the public LCBs and LSBs, Bank of Ceylon (BoC), Peoples’ Bank (PB), Wayamba
Development Bank (WDB) and SANASA City Bank (SCB) are the potential institutions.
SCB is the institution with a relatively higher potential and ability. Currently, it is functioning according to a rigid framework of urban livelihood development and
possesses an inherent desire to deal with urban producers and agriculture in general and it is seeking a prospective client to collaborate. Further, the experience of dealing within
the Gampaha City, cordial relationships maintained with the farmer community and highly flexible nature of the institution, together with its apparent capabilities to develop
and implement novel financial packages / services for requested agricultural projects, makes it a suitable financial institution to consider. It also has other facilities such as field officers and profit sharing mechanisms.
The other potential entity is the PB, with the respective branch manager expressing a
very positive attitude towards urban agriculture and being experienced in dealing with financing rural agriculture in other provinces of Sri Lanka. It currently deals with the
small enterprises and lower income groups in the district. Further, being a state bank adds to its credibility. However, issues such as lot of paperwork and unclear specifications were apparent. Although, PB comes with financial stability, we have
observed a sort of “inflexibility”, i.e. it is difficult to tailor-make financial products without the consent from the higher authorities, which makes them unattractive to the
unique needs of UAPs. In light of the above empirical findings and revelations, we would like to name the following FIs to design and finance urban agricultural activities
in Gampaha, IN ORDER: SANASA City Bank Ltd. (SCB); People‟s Bank (PB), and Wayamba Development Bank (WDB).
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Rationale of the Study The aim of this consultation is to provide information, knowledge and clear
recommendations that will serve to broaden collective and individual financing opportunities for urban poor and peri-urban producers located in the RUAF partner city of Gampaha.
Study Area
The study was carried out in the RUAF partner city of Gampaha (the capital of the Gampaha District in the Western Province of Sri Lanka). The Gampaha Municipal Council (GMC) consists of 33 Grama Niladhari (GN) divisions, which constitute the
geographical region of interest of this study.
Specific Objectives of the Study
Objective 1 – Identification and assessment of current practices of institutions and
programs that finance urban agriculture or other informal productive activities
(like micro-enterprise development) in the city and the existing opportunities, difficulties and bottlenecks for financing small-scale urban and peri-urban
agriculture they encounter.
Objective 2 – Identification of the needs and demands for finance from urban poor
engaged in urban agriculture, agro-processing or marketing.
Objective 3 – Proposal and recommendations to facilitate the access of small scale
urban producers to finance.
Methodology
Approaches Used to Achieve the Specific Objectives of the Study
As suggested in the preliminary work plan, which was approved by the Project
Coordinators of RUAF, a two-phased, but concurrently executed, multidisciplinary survey based methodology to complete the tasks specified below was adopted.
As the first step, an “in-depth discussion” with the RUAF Regional Coordinator (online)
and Regional Coach – FStT Project – Gampaha (in-person) was carried out ON 23RD
July 2009 to have a broad understanding about the previous work carried out by the RUAF in this respect. Also, the “documents published previously” by the RUAF on this aspect were collected and reviewed comprehensively. During the discussion with the
RUAF Regional Coach on the current RUAF urban producer group, the consultants reviewed a number of issues in relation to UA within Gampaha. Primarily was the
revelation that although they had contacted around 300 growers or potential growers (from the 33 GN Divisions), many had declined to participate, either citing that they are
not interested in the FStT Project and/or satisfied with their current level/type of activities and only 93 urban producers were available for the project.
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Objective 1 - Identification and assessment of current practices of institutions and programs that
finance urban agriculture
Approaches in Phase I:
A sampling framework (FIs) was developed that consisted of the
institutions/entities currently involved or those that have a potential to involve in financing urban agriculture (UA). The institutions covered, include: (1) Licensed
Commercial Banks (LCB); (2) Licensed Specialized Banks (LSB); (3) Co-
operatives; (4) Finance Companies, and (5) other Potential Institutions (Table 1).
Table 1 - List of Proposed Financial Institutions for Interviews:
1.0
Licensed
Commercial Bank
1.1 Public
1.1.1 Bank of Ceylon
1.1.2 Peoples Bank
1.1.3 National Development Bank
1.2 Private
1.2.1 Commercial Bank
1.2.2 Hatton National Bank
1.2.3 Nations Trust Bank
1.2.4 Pan Asia Bank
1.2.5 Sampath Bank
1.2.6 Seylan Bank
2.0
Licensed
Specialized Bank
2.1 Public
2.1.1 National Savings Bank
2.1.2 Wayamba Development Bank
2.2 Private
2.2.1 HDFC Bank
2.2.2 DFCC Bank
3.0
Co-operatives
3.1 District Cooperatives Rural Bank Union Ltd
3.2 SANASA City Bank Ltd
3.3 Gampaha Multi Purpose Cooperative Society Ltd
3.4 Henarathgoda SANASA Society Ltd
4.0
Finance Company
4.1 Citizens Development Business Finance Ltd
4.2 Senkadagala Finance Company Ltd
5.0
Other Potential
Institutions
5.1 CIC Agribusiness
5.2 Sarvodaya Economic Enterprise Development
Services (Guarantee) Ltd. (SEEDS)
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Having obtained the contact details of each institution, a “telephone conversation” and/or a “short visit” (as required) was made with the senior
representative/s or responsible officer/s of these institutions to receive preliminary information with regard to their current practices on UA. Based on
the outcome of this preliminary contact, the institutions to be contacted were identified.
A Structured Interview Schedule was developed (See, ANNEX 1 -
“INTERVIEW SCHEDULE for FINANCIAL INSTITUTIONS”) based on
the Terms of Reference (ToR) and other recommended literature on UA financing and revised after consulting with the RUAF Regional Coordinator.
An in-depth interview was conducted with the officer/s responsible for financing
agricultural projects of the selected FI to gather information (See, ANNEX 2 -
“DATABASE - FINANCIAL INSTITUTIONS”)
Objective 2 - Identification of the needs and demands for finance from urban poor
engaged in urban agriculture, agro-processing or marketing.
Approaches in Phase II:
The Sampling Framework (UAPs) consists of small scale urban commercial producers in consultation with the RUAF Regional Coach for Gampaha, where
93 urban producers belong to 8 groups were of concern: (i) „Samagi‟; (ii) „Arunalu‟; (iii) „Pubudu‟; (iv) „Ekamuthu‟; (v) „Isuru‟; (vi) Siyane Shakthi‟; (vii)
„Dimuthu‟, and (viii) „Wasana‟ (See, ANNEX 3 - “DATABASE – URBAN
AGRICULTURAL PRODUCERS”) (Further to the discussion with the RUAF Regional Coach, the consultants resolved to work with only 93 farmers, since if the other
potential/current farmers were contacted, their responses would be biased in terms of emphasizing their nonparticipation and highlighting that they do not require financial or
any form of support).
A Structured Interview Schedule was developed (See, ANNEX 4 -
“INTERVIEW SCHEDULE for URBAN AGRICULTURAL
PRODUCERS”) based on the Terms of Reference (ToR) and other
recommended literature on UA financing and revised after consulting with the RUAF Regional Coordinator.
The leaders of the group and key member/s were informed of the study through the Regional Coach and asked to prepare for Group Interview Sessions, which
were carried out later with the aid of Interview Schedule.
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Objective 3 - Proposal and recommendations to facilitate the access of small scale urban
producers to finance.
Approach:
The data collected through Phase 1 and 2 were coded using MS-Excel software (see,
ANNEX 2). The responses to each question included in the Interview Schedule were analyzed, individually and collectively (i.e. cross comparisons / compare and contrast)
to explore the behavior FIs. By giving reasons, the most appropriate FI was selected and several others were also selected as alternatives.
The Work Plan
ACTIVITY
Month 1 Month 2 Month 3
W1 W2
W3
W4
W5
W6
W7
W8
W9
W10
W11
W12
1. Discussion with RUAF Staff
2. SWF-1 = List of Financial Institutions SWF-2 = List of Producers
3. Preparation of Interview Schedule
4. Survey Plan
5. Data Collection & Coding
6. Data Analysis
7. Draft Report
8. Wrap up meetings with producers/institutions/RUAF
9. Final Report / Presentations
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THE CURRENT PRACTICES OF THE LOCAL FINANCIAL
INSTITUTIONS AND RELATED OPPORTUNITIES, DIFFICULTIES
AND BOTTLENECKS FOR FINANCING SMALL SCALE URBAN
AND PERI-URBAN AGRICULTURE ENTERPRISES
OUTLINE
Twenty-two (22) institutions (Table 1) within the Gampaha Municipality Council (GMC) were sampled for this phase of the study, and they comprised both financial
institutions and others that are currently involved in supporting agriculture or those that have the potential to support in the near future.
The Central Bank of Sri Lanka (CBSL), categorizes financial institutions using a classification system (Refer for further details).This classification was adapted for this
purpose and the five main categories were considered.
CURRENT ROLE AS FINANCIAL INTERMEDIARY FOR AGRICULTURE As per the Structured Interview Schedule that was developed, the FIs were assessed in
terms of their perception, potential and constraints for involving in financing UA. Table 3 highlights the present status of the FIs in relation to their financing activities and
agriculture in general.
Table 3 – Current financing activities for agriculture:
Currently Financing
Agriculture?
Remarks
Bank of Ceylon
Yes
Peoples Bank
Yes Mainly for pineapple and other major commercial crops, as needed and after identifying the real need of the customers.
Current programs include: "Krushi
Navodaya Loan Scheme" (KNLS), "Forward
Sales Contract" (FSC), "Athamaru Loan
Scheme" (ALS), "Micro Finance Loans"
(People's Fast)
National Development
Bank
Less for Agriculture Only for the large scale commercial agribusiness with complete project reports
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Commercial
Bank
Less for Agriculture For commercial production of perennial crops such as cashew nut, coconut,
horticultural products, including pineapple
Hatton National Bank
Yes For high-scale commercial cultivations
Nations Trust Bank
Almost No Yes, if it is only very commercial
Pan Asia Bank
No
Sampath
Bank
Yes For the projects that are deemed feasible and come up with a sound project report
Seylan Bank
Yes However, at present provision of credit to
news members is very limited and for the small-scale agricultural projects it is very
unlikely
National
Savings Bank
Less for Agriculture Do not provide loans for agriculture as much emphasized on other financing
programs
Wayamba
Development Bank
Less for Agriculture Livestock - broilers; based on the project, time period is decided, discussion with
them, Field Officer - prepare a report after visiting - based on these loan is provided; "Bahuvarshika Naya Yojana Kramaya" -
pineapple (completed); "Kapruka
Sanwardhana Naya" - CDA - for
intercropping/ under cropping in coconut lands; No discrimination for agricultural
projects; "Krushi Navodaya"; "Pashu
Sampath Sanvardhanaya” - dairy cows
HDFC Bank No
DFCC Bank No
District
Cooperatives Rural Bank
Union Ltd
Yes For the members only; Paddy/ Floriculture/ Coconut under planting
(intercropping); any project that adds value for local production or generates
employment; "Wimana" loan scheme
SANASA City Bank Ltd
Yes For the members only; in many areas related to agricultural production and processing, including horticulture and
floriculture
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Gampaha Multi Purpose
Cooperative Society Ltd
Yes For the members only
Henerathgoda SANASA
Society Ltd
Yes For the members only; for paddy, coconut, chillie can offer loans and
subsidies (i.e. equipment, planting material, fertilizer, compost); Ordinary
loans - up to Rs 50,000 by guarantee of two members for any agricultural project,
complete proposal is not needed
Citizens Development
Business
Finance Ltd
No
Senkadagala
Finance Company Ltd
No Not for agricultural production purposes;
but for real estates
CIC Agribusinesses
No Do not provide financial services for any
form of activities. Only provide advisory services
Sarvodaya
Economic Enterprise
Development
Services (Guarantee)
Ltd (SEEDS)
Yes For the members only; mainly focuses on
manufacturing and services; Agriculture loans are less in the Gampaha District, if available mainly for coconut, pineapple,
manioc and betel in small amounts
Only ten (10) institutions out of the above are at present involved in financing of any agricultural venture (BoC, PB, HNB, SB, SeB, DCRBU, SCB, GMPCS, HSS &
SEEDS) and five (5) out of these are entities that support only its members (individuals who have obtained a membership with the cooperative). This is the ground reality in
Gampaha, where although we found that most of the existing FIs showed “positive attitude” and/or “sympathy/need” towards the agricultural activities/communities, in general, when it comes to the issue of access to their credit/loan/other financial support
schemes, small-scale agriculture (in terms of lower capital/human resource and/or only cultivation with no or minimal processing/value addition) does not take a prominent
place. Similarly, the awareness of those FIs, in general, regarding urban agriculture was also limited.
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CAPABILITIES TO ACT AS A FINANCIAL INTERMEDIARY FOR URBAN
AGRICULTURE
Table 4 – Financing urban agriculture
Currently finance Urban
Agricultural practices in
Gampaha city?
How can you assist a program to
improve UA?
Bank of Ceylon
Yes Yes, We can accept any project / financial plan that is approved by the
higher authorities / parent decision making body; However, the bank can
only make recommendations to the governing body
Peoples Bank
Yes, animal husbandry and
commercial floriculture production
Yes, The bank would like to accept
any project / financial plan subjected to the approval by the higher authorities; Would like to come to an
agreement with any reliable institution / society after monitoring the project
sites for their feasibility; the bank is very flexible to provide funds for
agriculture, in principle, can even provide group loans under a well guided program
Commercial
Bank
Yes, but on case by case basis Yes, can assist urban agricultural projects, if the project proposal is acceptable to the bank; however, do
not target agricultural projects/farmers, in general, since
default is high - dedication is less - monitoring needed - high
administrative cost – requesters reluctance to offer collateral.
Sampath Bank
Yes - established a contract with farmers product to the
"Cargills" (financing guarantee from the Cargills)
Yes, the bank can consider any reputed financial plan to which the
approval of the higher authorities can be obtained given that the project /
plan is sustainable in the long run; The proposed "Cargills farmer
contract program" can be used as a sample / case for further discussion
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Wayamba Development
Bank
It is not an issue whether the client is urban or rural.
However, there is no specific program aiming financing of
UA yet
Yes, a feasible credit facility can be arranged given that there should be a
third party to eliminate defaults and problems associated with payback;
The bank is willing to provide group loans for urban agriculturists,
however, the payback should be guaranteed; For a such scheme to be
considered, the approval of the higher authorities is required.
District
Cooperatives Rural Bank Union Ltd
Yes, the bank will finance
irrespective of client's
residency status
Yes, the cooperative bank can provide
financial services for small to medium
scale agriculture related activities; There is no plan to provide
infrastructure/goods (any forms of complementary services provision)
SANASA City Bank Ltd
Yes, the bank finance
irrespective of client's residency status
Yes, the City Bank likes to develop a
"Group Package" for agricultural entrepreneurs, where special attention may be given to the urban producers.
Those interested parties can get the group membership of such a program.
The bank is flexible and is willing to entertain new ideas of group savings
and loans. Third party ideas on such schemes are welcome.
Henerathgoda SANASA
Society Ltd
Yes, we do; however, not much
Yes, a low interest credit program for specific UA (New Program) can be
introduced if there is real need; there is a possibility of involving in a
"Revolving Fund" (for the group from Henerathgoda)
SEEDS
Currently not in Gampaha No, the SEEDS can not go beyond the
mandate of SSS to finance urban agriculture, where the theme is to uplift the living standards of
village/rural people.
The Private Licensed Commercial Banks such as Hatton National Bank and
Commercial Bank were found to be “least” in favor of providing credit scheme for small-scale urban agricultural projects. The reasons include that they do not want to extend
their portfolio into such enterprises as they are subjected to “inherent risks” associated
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with agribusinesses (i.e. loss of market, crop failure). Further, these banks believed that this segment was incompatible with their existing customer base, and the small size of
the potential customer base for UA was not attractive from the banks‟ point of view. However, the manager of the Sampath Bank in Gampaha was an exception, where he is
interested in extending its financial portfolio towards these enterprises (highlighted the case of forming an agreement with „Cargills‟ – Sri Lanka‟s largest supermarket chain, in terms of outlets and retailing space).
Public institutions, both LCBs and Licensed Specialized Banks (LSBs) were more in
favor of UA-related financing opportunities. However here, rigid rules and regulations from the corporate national level frameworks (such as the need to get approval from the
parent decision-making body, limited independence of the relevant branch, excessive
paperwork, inflexibility with regard to forming new forms of financial products/services in addition to the existing packages, etc.) prohibitive towards providing finance for
agricultural activities.
However, the public LCBs such as Bank of Ceylon and People‟s Bank already provide a number of financial packages/services for small-scale agricultural and micro-
entrepreneurs at the moment, for example "Krushi Navodaya Loan Scheme" (KNLS),
"Forward Sales Contract" (FSC), "Athamaru Loan Scheme" (ALS) and "Micro Finance Loans"
(People's Fast). Although these schemes are wide open for the Urban Agricultural Producers (UAPs), there appears to a lot of paper work and unclear specifications. Although, these two banks come with financial stability, we have observed a sort of
“inflexibility”, i.e. it is difficult to tailor make financial products without the consent from the higher authorities, which makes them less approachable to the unique needs of
UAPs.
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“KRUSHI NAVODAYA”
CREDIT PROGRAMME Implemented to empower small farmers by providing access to agricultural inputs at an affordable cost.
Loan amount: Up to Rs. 100,000 (Min. Rs. 10,000)
Eligibility: Export agricultural crops such as cinnamon, pepper, cardamom, etc., sugarcane, fruits, floriculture, cashew, livestock, fisheries, organic agriculture, agricultural inputs such as
seed and planting material and development of organic fertilizer, technology for value added agro based product, storage facilities, processing of fruit and food and rice flour milling; farmers, producers of minor export crops, chena cultivators, sugarcane growers, fruit growers, cashew planters, growers of floriculture, livestock farmers, fisherman, producers of organic agriculture, producers of seed, planting material and organic fertilizer, processing of fruit and food and rice flour millers.
Interest: 8% per annum to be charged from the borrower
Repayment: Up to 36 months or from the proceeds of the harvest in case of agricultural crops, whichever occurs early.
Security: Inters guarantee of two borrowers for loans up to Rs. 50,000; two guarantors
acceptable to the bank for loans above Rs. 50,000; assignment over insurance covering cultivation of crops, livestock, etc., wherever applicable.
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MICRO FINANCE LOANS (PEOPLE’S FAST)
New People's Fast is a brand for Micro finance loan product. It provides financial assistance for: All business needs of micro, small and medium entrepreneurs, with relax collaterals, with speed loan disbursements.
Business Areas: To startup of enterprise / business; to improve existing enterprise / business; to expand your enterprise / business.
Sectors: Agriculture, Agro based industries, Industries, Self employment, Cottage industry, Trade, Services.
Eligibility criteria of this loan: Person with required skills; Engage in a profitable business (Agriculture, Animal husbandry, Industrial, cottage, Industry Trade, Service); Permanent resident of bank branch area.
Maximum Loan limit: Micro - Rs. 500,000; Small - Rs. 1,000,000; Medium - Rs. 5,000,000.
Interest rate: Negotiable
Non financial services for customers: People's Bank provides non financial services with identified service providers on Skill Development, Business Management, Business Planning, Entrepreneurship Development, Tax Planning etc.
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SAMPATH BANK – CARGILLS CEYLON PARTNERSHIP Sampath Bank and Cargills (Ceylon) Plc sealed a Memorandum of Understanding (MoU) aimed at synergizing the competitive advantages of both corporates aimed at offering a variety of value added services to customers of both partners. Cargills has the largest chain of retail food outlets in the island with Cargills Food City rated the Most Valuable Retail Brand in Sri Lanka. The retail chain is geared with over 137 outlets spread across the island covering 19 districts. Cargills has developed a unique business model enabling the direct purchase of rice, vegetable and fruit from our local farming community located in Thambuththegama, Nuwaraeliya, Norochcholai, Hanguranketha, Dehiattakandiya, Bandarawela,
Gampaha/Divulapitiya and Neluwa. According to the company, in line with its ethos of fair trade Cargills currently partners over 7000 such farmers guaranteeing them a minimum price which is about 20% above the cost of production. As an initiative in these regard, it is now developing a mechanism for providing credit and other forms of financial instruments for farmers and farmer communities through partnering with Sampath Bank.
The Cooperatives contacted were, on the other hand, very positive and eager to provide finances to UA projects. They deal with on average, group savings for one-hundred (100)
to two-hundred (200) families, and have memberships of almost four-hundred (400) individuals. However, their services are limited to “members only” and often the lack of
transparent financial management/records together with the lack of other facilities such as limited human resource capabilities (few monitoring officers, service personnel, etc.)
LACK OF WILLINGNESS TO PARTICIPATE IN FINANCING UA AND
FUTURE PROSPECTS When inquired from the institutions as to the reasons for not willing to finance UA or
agriculture in general, many came up with similar reasons. High rates of default, together with the high risk involved in crop failure were the commonest. Another issue
raised by some was that farmers lack the motivation/commitment for repayment. It has been observed in schemes that allow to payback after harvest, farmers spend their
income to purchase other items than repaying the loans first. An interesting revelation
was that if the FI was involved as an intermediary for a government project (i.e. if the IF was required to manage / distribute financial resources from the government/NGO)
farmers would feel that loans from governments‟/NGO‟s need not be paid back as they are “subsidies”. Certain FIs stressed the need for a third party to monitor, and it could be
a farmer organization and also group financial packages and not individuals. Although the number of institutions that have the potential and capabilities to play the
role of a financial intermediary is large, only a limited number were willing to offer finance and only a few of these were able to satisfy the requirements of a farmer
engaging in UA (flexibility, innovating new financial products, stability and competence,
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etc.). This was the general scenario amongst the FIs within the GMC and the nature of financing agriculture in general; with limited willingness of the private institutions to
participate and the state bodies willing to participate due to recent policy regulations that prioritize financing agriculture. However, the latter has rather inflexible packages, which
are time consuming and often complicated to the ordinary farmer. As such, there are no models of financing/service schemes that could be adapted for UA in Gampaha.
Table 3 summarizes the responses of the financial institutions in respect of their future (corporate) plans to involve in financing UA.
Table 5 – Future plans to service urban agriculture
Do you have any future plans to include/consider UA?
Bank of Ceylon
Yes, as a public bank, the BoC likes to come up with different
packages financing agricultural activities that can take into account of UA, in particular, and also the bank would like to launch any agricultural based credit program if it is part of a national policy
framework
Peoples Bank
The bank would like to extend any of its current credit programs into a scheme for the Gampaha farmers at low interest; The bank
would like to expand its current credit portfolio into financing agricultural activities, as it is a request of the National
Government; The bank would also like to develop the small scale home gardeners into enterprises by provision of adequate financial support
Commercial Bank
If there is any demand for financing urban agriculture, the bank
would forward that to the Head Office, which houses a separate department dealing with agricultural activities ("Rural Credit
Dept"); The local branch is not in a position to offer credits to risky businesses such as small scale urban agriculture and/or at low
interest rates
Hatton National
Bank
The bank may be offering completive programs, but depends on
the trend of the market
Sampath Bank
The bank can strengthen a "Cargills" type competitive program
depending on the demand / market trends; However final decision to be taken by Head Office
Wayamba
Development Bank
The bank is considering extending its development schemes into agriculture , the local branch has independence to discuss such
credit programs ("Development Loans"); However need permission from Head Office / Regional Managers for final
decision
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District Cooperatives
Rural Bank Union Ltd
Under the 'Corporate Plan' of the cooperative, around 2.5 million rupees has been allocated for 100 loans (with good proposals), that
can be accessed by anybody who has land to be placed as security; "Wimana" loan scheme can be improved/diversified
SANASA City
Bank Ltd
Yes, the bank would like to contribute to urban people involved
with agriculture to become entrepreneurs. It likes to develop individual / group savings plans and loan schemes alone or with a
reputed institution which can share the ideas and legal framework of the bank.
Henerathgoda SANASA
Society Ltd
The bank plans to promote urban agricultural practices, home
gardening, etc. through the support of an agricultural instructor; The bank also plans to develop a loan scheme for the members
POTENTIAL ENTITIES FOR CONSIDERATION The more eager and potential entities (SANASA City Bank, People‟s Bank, and Wayamba Development Bank) were willing to partner with an external body to
formulate and implement strategies and programs for financing UA. However, the respondents raised issues such as the independence of the intermediaries and the
administrative cost (evaluation costs, monitoring costs, repayment-collection costs) of such programs that needs to be considered which many financial institutions did not like.
Table 4 indicates the views/opinions of the consultants about the institutions that showed potential and willingness to act as financial intermediaries for UA venture
within the GMC.
Table 6 – Features of potential financial institutions
Future Prospects for
Financing UA Current Practices Drawbacks
Bank of Ceylon
The BoC has potential
to develop and implement a financial
support program for
urban agricultural
producers given that such a program should be in line with its
current programs at the national level. Being a
national institution, it has been subjected to
the rules and regulations imposed by
the government, and as
“Agricultural
Farming – NRCS (New
Comprehensive
Rural Credit
Scheme)” – [Interest 8%; max = 500,000 (pre) to
5 million (post); repayment = 240
days; Agro Identity Card]
"Krushi Navodaya
Loan Scheme"
(KNLS) – [Interest
Inflexibility, lack of independence/initiative
to develop novel packages
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result, there exists a less flexibility in terms of
administering a financial program by
the relevant branch. It is somewhat difficult to
develop a program that only caters to a
particular group of people such as those chillie cultivators in
Gampaha, because if there is any program
available, it may be a common program with
rigid requirements.
*%; 10,000 to 100,000;
repayment = 36 months / after
harvest]
Peoples Bank
The PB has potential and strong willingness to involve with
financing urban agricultural activities
within Gampaha. Like in all public financial
institutions, PB will also have to be compliance with the requirements
of the central governing body. Although PB can
be considered a financial institution
with strong financial stability and integrity and willing to support
agriculture in Sri Lanka, the local branch
at Gampaha is not in position to made own
decisions in this respect (i.e. lack of flexibility). The PB can only
provide financial support, mainly in
terms of credit, but could not go beyond
provision of other requirements for
Current programs
include: "Krushi Navodaya Loan
Scheme" (KNLS), "Forward Sales Contract" (FSC),
"Athamaru Loan Scheme" (ALS),
"Micro Finance Loans" (People's
Fast)
Inflexibility, cannot provide other facilities/requirements,
inability to develop innovative financial
packages without national-level
authorization
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farmers, for example training, legal advice
etc.
Sampath Bank
Sampath Bank has a potential to finance UA,
given its present involvement with
"Cargills". However, our opinion is that it would like to provide
such loans on individual basis rather
than on groups/ clusters given the past
experiences related to pay back and defaults in agricultural loans. The
bank is culturally sensible and has a true
desire to invest in national development.
However is less flexible and able to provide only a limited financial
support.
"Cargills farmer
contract program"
Limited financial
support, lack of experience in dealing with group loans for
UA ventures
Wayamba
Development Bank
The WDB has willingness to involve in
a financial support program for urban
agricultural producers; however it is necessary for involvement of
higher authorities for
any extensive program.
There exists less flexibility in terms of
administering a financial program by the relevant branch,
although independent and experienced, there
is an issue with capabilities and
resources to develop
"Bahuvarshika Naya
Yojana Kramaya" –
(pineapple); "Kapruka
Sanwardhana Naya"
– (with the
Coconut
Development Authority -
intercropping/ under cropping in
coconut lands); "Krushi Navodaya";
"Pashu Sampath
Sanvardhanaya
(dairy cows)
Inflexibility, lack other resources (e.g. sufficient field officers,
etc) to implement program, limited
capability to develop novel services
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and implement a successful scheme.
SANASA
City Bank Ltd
The SCB has a relatively higher
potential and ability; currently involved in
urban livelihood development, and has the inherent desire to
deal with urban producers and
agriculture in general and is already seeking a
prospective client to partner with. Further, the experience of
dealing within the Gampaha City, cordial
relationships with the farmer community and
highly flexible nature of the institution, together with its apparent
capabilities to develop and implement novel
financial packages / services for requested
agricultural projects, makes it a suitable financial institution to
consider. It also has
No standard packages, design customized
programs for entrepreneur‟s
requirements, interest rate and
repayment time can be decided jointly
Need to obtain membership
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other facilities such as field officers and profit
sharing mechanisms.
COMPLEMENTARY SERVICES PROVISION It is generally accepted that support for UA needs to be an integrated approach where
financial services are complemented with training, marketing support, etc. In this light, this study also focused on identifying institutions that could provide these
complementary support services. They were assessed from both ends of whether they can provide minimal support services in addition to financing (e.g. availability of a
conference hall) to the fully fledged training providing institutions. Table 7 summarizes
the responses from the prospective entities.
Table 7 – Institutions that can provide complementary services
What other services will you able to provide for UAPs?
Wayamba Development
Bank
The bank has affiliations with external organizations/institutions that
are able to provide training programs, the good customers/clients of the bank can be directed / sent for these sessions/events
District Cooperatives
Rural Bank Union Ltd
Marketing support can be provided; The cooperative can undertake proposal evaluation for its members
SANASA City Bank Ltd
The City Bank can provide its 'Conference Hall' and other amenities which can be used to provide training sessions/seminars/workshops
for the urban producers; Furthermore other facilities such as annual bonding sessions, out door trips and recreational activities can be
organized / provided at subsidized rates for members
Henerathgoda SANASA
Society Ltd
The cooperative is able to provide subsidies for equipments, training, legal advice (during regular monthly meetings)
CIC Agri Businesses
CIC AB provides advisory/extension services for UAPs through
workshops, seminars, leaflets, internet, etc. Special workshops/training sessions are also conducted covering topics such as "Managing Limited Resources", "Cultivation Practices", etc. The
company is also able to tailor make advisory/extension programs; It is free of charge for producers who purchase inputs from the company;
For other special requests, charges apply: for e.g. 1 day program - Rs 2000 per head (without meals) - between 40 and 50 participants. Other
supportive divisions of CIC AB such as 'Agri Advisory Service' and 'Agri Education Tours' are also involved
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SEEDS
Sarvodaya consists of three sections: SEEDS, MTI & REDS; MTI - provide training; REDS - market identifying, supporting (e.g.
Anthurium cultivation), even non-members can be trained and supported; Need to coordinate with the Enterprise Development
Office for this purpose
Here again we find that not many institutions have the capability to satisfy the training
needs of the urban producer. SEEDS and CIC Agri Businesses (Urban Agricultural Division) emerged as those that were able to provide other forms of services such as
training and workshops on special topics of interest for the UAPs. CIC AB has the greater capability out of the two for satisfying the training needs of the UAPs. However,
the drawback lies in that for specially designed workshops, they charge a payment.
Otherwise, for producers who are purchasing inputs from them they provide free advisory services.
At present CIC AB is involved in supporting home-gardening practices in urban areas
(such as Colombo) and also has the support of the corporate agribusiness firm and other extremely active divisions. SEEDS, on the other hand, are a not-for-profit, NGO whose theme is of rural upliftment. It also brings years of experience in working with rural
micro enterprise development and training of agricultural entrepreneurs. Both these institutions are willing to work with a coordinating body or association for the providing
services for the training needs of its growers.
A summary of key bottlenecks for financing UA is given in Table 8.
Table 8 – Key bottlenecks for financing UA
Key Bottlenecks Examples of FIs that exhibited this
bottleneck
Unaware of UA / Limited awareness of
UA
Most of the Licensed Commercial Banks
(Private), Licensed Specialized Banks (Private) and Finance Companies
Perception of financing agriculture, especially small-scale production as “risky”
Most of the Licensed Commercial Banks (Private)
Concerned about farmer behavior in
relation to repayment
Peoples Bank, Wayamba Development
Bank, Commercial Bank
Perceive that UA segment is small and unprofitable and/or does not match with
current strategic objectives
Commercial Bank, Nations Trust Bank
Lack of a potential entity to partner with / collaborate
SANASA City Bank Ltd, Wayamba Development Bank, Henerathgoda
SANASA Society Ltd
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Standard financial products / inflexible nature of the FI / rigid rules and
regulations
Bank of Ceylon, Peoples Bank, Wayamba Development Bank
Targeting only large-scale commercial enterprises / mainly those that are
involved in the processing sector (“value addition & marketing”)
Commercial Bank, Hatton National Bank, Nations Trust Bank
Provision limited to geographic /
socioeconomic boundaries
Almost all Cooperatives, SEEDS
Concerns about independence and administrative costs
SANASA City Bank, Sampath Bank, Wayamba Development Bank, Peoples
Bank, Commercial Bank
Current economic recession / financial crisis coupled with the crashing of some reputed financial institutions recently in the
local context, creating a „cautious‟ / „risk averse‟ attitude
Most of the Licensed Commercial Banks (Private), Licensed Specialized Banks (Private) and Finance Companies
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DEMAND FOR FINANCE FROM THE URBAN AGRICULTURAL
PRODUCERS (UAP) AND THEIR SPECIFIC CONDITIONS
SOCIO-ECONOMIC CATEGORIZATION A basic outline of the socio-economic status of the UAPs was assessed for the purpose of
the study (Figure 1).
With regard to the gender of UAPs, 73 percent of the respondents were female and a majority (around 80 %) was above the age of 40 years. In terms of principal occupation,
44 percent were farmers, and 11 percent being pensioners. A majority of the respondents
(49 %) had a mean monthly income between Rs 5,000 and Rs 10,000 and only 7 percent had incomes that exceeded Rs 10,000. Similarly, a majority of the urban producers (78
%) had either completed or schooled up to secondary education and only 7 percent had studied up to tertiary education.
When inquired about the number of years that they had involved in agricultural practices, 22 percent had involved for over nine years, while the closer majority (29%)
for one to three years (Figure 2). In relation to urban agriculture, 44 percent of the respondents said that they have been involved between one and three years (Figure 3).
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FINANCING MEANS, METHODS AND PERCEPTION The UAPs have mainly utilized their “own funds and savings” (72%) for agricultural
practices, with virtually none having accessed formal sources for this purpose (Figure 4). Informal sources have been tapped by nearly one fourth (28%) as well. Many farmers
have utilized their own incomes (from pensions, savings, profit from cultivation of other crops, etc.) for financing their UA venture.
The reasons for this vary among the respondents, from being „private reasons‟ for not obtaining funds (33%) to „strict requirements‟ for obtaining credits/loans (11%). However, several common constructs emerged that reflected their perception. A primary
element being that, formal FIs are “strict” and project an “unfriendly environment” towards growers (18%). Complains extend to the limit that they are unaware of any
suitable financial product and/or its providers (14%). Another interesting personal issue for the UAPs was about their “dignity and self-respect” in relation to obtaining funds
from FIs; some of the growers raised this issue, indicating that they feel uncomfortable
when accessing a FI such as a reputed public/private bank to obtain loans for their agricultural activities (21%) (Figure 5).
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JMUK Jayasinghe, 2009 | Confidential
When inquired deeply for reasons for these issues, a common response was that they do
not have a “good relationship” with the FIs and that the FIs tend to overpower them. A good majority indicated that they were unable to understand the existing financial
packages/services offered by institutions, especially because they have no prior experience of utilizing them fully. When asked “what was their opinion about financial institutions in terms of their past experiences” (Figure 6), 18 percent of the respondents
indicated that they were subjected to risks and about 10 percent reported that they faced numerous challenges when accessing the FIs, including higher interest rates, coupled
with unclear specifications and conditions, together with the fact that many existing packages were not in line/ not in sync with their cultivation practices.
FINANCIAL REQUIREMENTS The responses from the UAPs, with regard to a „suitable‟ financial package for their venture, were symptomatic of the need for flexibility (55%), both in relation to obtaining
financial support and paying it back. Lower interest rates (67%); ability to pay back after harvest (48%), and recognition of farmer group/cluster members‟ mutual guarantees
(33%) were mentioned, amongst the others, as their key requirements. There was no
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particularly preferred form of financial support; credit/loan schemes were accepted, nevertheless, there were certain preferences for subsidy schemes and grants (Figure 7).
When asked to specify in what areas/forms they needed financial assistance, the
following (essential) inputs emerged: equipments (53%), fertilizer (46%) and pesticides (11%). The respondents especially highlighted their need for a support scheme in
obtaining/purchasing fertilizer (e.g. Muriate of Potash).
The stability of the FI was also considered important. Furthermore, they mentioned the recent crash of FIs in a local context (e.g., Ceylinco/Golden Key Scandal, “Sakvithi” Scam
etc.) and preferred to deal with a reputable bank than other entities.
SPECIAL CONSIDERATIONS
The UAPs requested other forms of assistance from intermediaries such as training (both technical and business related skills), which was requested by 64 percent of the UAPs,
Legal Advice (24%) and Marketing Support (29%). Here the responses made feel that strong focus needs to be made, especially with regard to a proper extension/technical
(agronomical/crop management) support system (Figure 8).
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Furthermore, other forms of skill development namely, business management skills, leadership development, marketing orientation improvement, were preferred. Support
for marketing activities was a recurring point in the sessions and a considerable number of respondents were aware of the importance of agri-food marketing for the success of
their UA enterprises. In addition to this, certain structural recommendations were made. Some of these were
common collective suggestions, such as: need for proper communication mechanism with the institutions/entities they obtain support/assistance from and the FI to be an
agricultural community-level involved entity. Others were from minor groups and certain individuals, such as: involvement with a state bank, regulation that only officials
of the UA enterprise should deal with the bank and provision of allowances (travel, telephone, etc.) to the officials. Existing literature on financing UA indicates the need for community participation the importance of the role of both FIs and UAPs in
funds/resource management. In this regard respondents were asked to state their views on a few broad ranges of topics/issues, such as level of autonomy for FIs, level of
government control/supervision, whether they had any opinions on the primary source of resources, and the distribution of resources among UAPs, etc. Around 33 percent
were in favor of an independent financial intermediary. With respect to government supervision, majority preferred involvement at District level (16%) and then at
Municipality level (12%). With regard to the issue of the role of UAPs in the management of funds/resources, opinions varied. It was observed that certain
individuals demanding complete control, whilst the majority preferring responsible
involvement in any funds/resource management system.
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PROPOSALS AND RECOMMENDATIONS TO CREATE A MORE
ENABLING/FACILITATING FINANCING ENVIRONMENT FOR
SMALL-SCALE URBAN PRODUCERS
Based on the analysis of information obtained through structured interviews
supported by the interview schedule, the following recommendations can be made:
“LCBs (both public and private)”, “LSBs (public)” and “Cooperatives” are
preferred, in general, over the “LSBs (private)”, “Finance companies” and “other Potential institutions” (excluding, SEEDS).
Out of the LCBs (private), both Commercial Bank (CB) and Sampath Bank (SB)
have the potential to finance UA activities in Gampaha, but Sampath Bank is leading.
Out of the LCBs (public) and LSBs (public), Bank of Ceylon (BoC), Peoples’ Bank
(PB), Wayamba Development Bank (WDB) and SANASA City Bank (SCB) are the
potential institutions.
LCBs (public) and LSBs (public) can be recommended over LCBs (private), or
in other words: BoC, PB, WDB and SCB is better than CB and SB.
Out of the three public banks listed above, i.e. BoC, PB and WDB, all three are
in good standing to finance UA, however, in my opinion, the PB and WDB are
more suitable as they displayed their willingness and to explore new ways. Both banks were willing to persuade their top management to come up with a suitable
program for farmers, there by engaging in innovative ways of banking. The BoC
came across as being a little bureaucratic and the respective branch is less willing to deal in this regard as it needs the approval from the head office in Colombo
The most potential public bank is the PB. The manager of this bank had
expressed a very positive attitude towards in UA in general and being experienced in dealing with financing rural agriculture in other provinces of Sri Lanka. It
currently deals with the small enterprises or lower income groups in the district. In comparison to the PB, the WDB lacks related staff and lesser capacity to be
involves in financing activities.
Out of the Cooperatives, all except “Gampaha Multi Purpose Cooperative Society” (GMPCS), which was facing an internal crisis at the time of this study,
were willing to and had the capacity to finance UA programs.
SCB, Henarathgoda SANASA Society (HSS) and District Cooperatives Rural Bank Union Ltd. (DCRBU) were willing to finance UA programs, but the first
two institutions were more “eager” to participate by designing an appropriate
financial package by them. The HSS deals with a huge customer base; facilities
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are limited for those within a specific region within the Gampaha City; lack of field officers and “nontransparent” financial resources (no clear accounting
details and lack of reliable financial controls, with financial management decisions being completely under the preview of a small number of individuals)
make it an unlikely candidate over and above the SCB. DCRBU has not shown any reason to select over the SCB, based on my observations.
I have observed that the SCB as an institution with the highest potential and
ability. Currently, it is functioning according to a rigid framework of urban livelihood development, has the inherent desire to deal with urban producers and agriculture in general, and is already seeking prospective clients to collaborate.
Further, the experience of dealing within the Gampaha City, cordial relationships with the farmer community and highly flexible nature of the institution, together
with its apparent capabilities to develop and implement novel financial packages/services for requested agricultural projects, makes it a suitable financial
institution to consider. In comparison to other FIs, and amongst the Cooperatives in particular, it also has other facilities such as field officers and profit sharing
mechanisms
“SEEDS” is also willing to participate in designing a package, but it is constrained by its current policy framework, as approval for such a project
requires the change of its Strategic Action Plan, which, I believe, at this moment, would not be compatible with the principles/plans of the RUAF.
Finally, by considering all above, I would like to name the following FIs
to design and finance urban agricultural activities in Gampaha, IN
ORDER:
1. SANASA City Bank Ltd.
2. People’s Bank
3. Wayamba Development Bank
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LIMITATIONS OF THE STUDY AND PROBLEMS ENCOUNTERED Some of the key problems that the consultant faced in carrying out this study are pointed
below:
Non-participation of certain financial and other potential institutions for the study
citing various reasons such as lack of interest in agricultural/urban agricultural projects and there is “no incentive” for participation.
Discussions were limited to 15-20 minutes, on an average, for the most cases
especially with LCBs and LSBs as they were “so busy” with their regular
customers. Because of this, it was not possible to dwell deeply on descriptive
shallow issues and cover wider areas, both conceptually and physically.
It was difficult to obtain facts to prove certain claims as many things were
“confidential” and cannot be released to outsiders.
The scope and focus was limited to the facts explored in the ToR and the
Structured Interview Schedule developed in turn.
Given the exploratory nature of the study, there could be issues that could create problems / errors in the final analysis and recommendations of the consultants;
most of the output obtained is qualitative information, and interpretation of such findings is typically based on the judgment of the consultant: thus the conclusions may be biased at times.
Lobbying among some banks was evident, as revealed from the responses given by the institutions. Some may have been discouraged in the process.
Given the recent financial turmoil in the local context, the response of institutions
as well as, to a limited extent, the producers could be cautious and more risk averse than earlier / usual.