AN EMPIRICAL ANALYSIS OF STAFF PRODUCTIVITY AND FINANCIAL SUSTAINABILITY OF MICROFINANCE INSTITUTIONS IN JAFFNA DISTRICT, SRILANKA (SPECIAL REFERENCE TO CO – OPERATIVE RURAL BANKS)

Abstract

Microfinance institutions (MFIs) focus on providing credit to the poor who have no access to formal banking institutions, mainly, commercial banks, in order to reduce poverty and to help the poor for setting up their own income generating businesses. Providing credit to the poor in many cases is a very costly activity, and, hence, MFIs are often loss making institutions, i.e they are not financially sustainable, requiring them to depend on outside financial assistance. Recently, however, there seems to be a shift in the focus from subsidizing MFIs institutions to a business model based on financial sustainability and efficiency of these institutions. An important element in the desirability of MFIs‘ approach to poverty alleviation is the promise of financial sustainability through financial and operating self sufficiency. In this way this study analyses the impact of the staff productivity on financial sustainability of Co – operative Rural Banks, commonly known as CRBs, located in Jaffna district. The number of active loan clients to number of staff members, and the number of active loan clients to number of loan officers and gross portfolio outstanding per loan officers are used to measure the staff productivity. The Operational self – sufficiency (OSS) and financial self-sufficiency (FSS) are used to estimate the financial sustainability. Out of thirty four co-operative rural banks in Jaffna district, twenty branches were selected for the study covering their operations during a period of 2003 -2007.The research findings indicate that the staff productivity has the significant impact on Operational self – sufficiency and financial self sufficiency of these institutions.

Key words: Microfinance, Operational self - sufficiency, financial self - sufficiency, Staff Productivity.

For full paper: fmscresearch@sjp.ac.lk