MICROCAPITAL STORY: Microfinance Boosts Lending Portfolio of Sri Lanka’s LB Finance by 40 Percent

According to a report in the Sri Lankan Daily Mirror, LB Finance has announced that 40 percent of its disbursements for the fiscal year ending March 31, 2009 were in microfinance. The significant portion of its disbursements to microfinance resulted partly from its increased focus on micro-leasing of three-wheeler vehicles and agricultural equipment to the informal economy, as well as an expansion to more remote areas of Sri Lanka where there are limited financial services.

LB Finance conducts promotional three-wheeler leasing campaigns around the country where people have the opportunity to lease a vehicle in about one hour after an on-the-spot credit evaluation. Three wheelers are a source of income for many people in struggling localities who use them for hire and for transportation. As reported in a recent MicroCapital article on leasing in Rwanda, micro-leasing can be a more affordable way for poor clients to start a business and a more effective method of finance. Because many poor people in developing countries lack credit history, do not have assets that can be used as collateral, or have insufficient funds for a down payment, purchasing an asset with a loan may not always be a feasible option.

Clients of LB Finance can make repayments at any of the company’s outlets which include pawning centers and service centers, as well as the main branch. LB Finance currently operates 57 pawning centers throughout Sri Lanka, in areas such as Pitigala, Mahiyanganaya, Matale, Monaragala and Embilipitiya, and soon in Batticaloa. The company also has an online payment facility.

LB offers a range of services including fixed deposits, hire purchase, micro-finance, agro-finance, letters of guarantee, finance leases, pawn broking, and the express Western Union international money transfer facility. LB Finance is a public listed company, registered with and monitored by the Central Bank of Sri Lanka. According to its website, as of March 31, 2008 LB Finance had total assets of Rs. 10.7 billion (USD 91.3 million). Mr.Dhammika Perera is the company’s major shareholder and Deputy Chairman. Mr. Perera is also Chairman/Director General of The Board of Investments of Sri Lanka. His business interests extend into hydro power generation, shipping, manufacturing, leisure, banking and finance.

Micro-leases in developing countries are typically what are known as finance leases in developed countries and similar to a term-loan in that they are usually not cancelable. In the lease the lessor retains ownership of the asset during the lease, giving the lessor a relatively stronger security position than a creditor in a loan. As a result the down payments are usually smaller than with a loan and additional collateral usually not required.

Micro-leasing has been around for many years in Sri Lanka. In 1980 the Sri Lankan Government moved to initiate a World Bank survey which resulted in a proposal to establish a leasing industry in Sri Lanka. At the same time, the International Finance Corporation (IFC), a division of the World Bank, helped to launch the Lanka ORIX Leasing Company, or LOLC. The IFC has a long history in financing leasing programs throughout the world, helping establish the first leasing companies in 25 countries around the world, and advising on leasing legislation in 35 countries. The IFC’s total investment in leasing over the last 30 years has been over USD 1 billion in 181 leasing investments in 56 countries.

By Laura Anderson, Research Associate

Additional Resources:

The Daily Mirror Financial Times: Micro-financing boosts the lending portfolio of LB Finance

LB Finance: Home, Financials

MicroCapital Story: International Finance Corporation Rwanda CEDP Leasing Program Calls for More Leasing to SMEs by Financial Institutions at Workshop Organized by Rwandan Association of Micro Finance Institutions in Collaboration with Rwanda Development Board

International Finance Corporation: Home

World Bank: Home

Lanka ORIX Leasing Company: History

Central Bank of Sri Lanka: Home