Impact of Risk Management towards Sustainability of Microfinance Industry in Sri Lanka: A Case Study

Abstract

Purpose of the study: The microfinance industry has been developed significantly last two decades. It is fast becoming a household name globally and one of the key contributors to social-economic development. The Sustainability of the microfinance industry depends on several factors and encounters numerous challenges. The purpose of the study is to examine whether there is a relationship between risk management and the sustainability of the microfinance industry in Sri Lanka. Methodology: A simple regression analysis is used to demonstrate a connection in which one independent variable is predicted to influence one dependent variable. The study included 376 microfinance women borrowers from three districts in Sri Lanka, and the cluster sampling approach was used. Primary data was gathered using surveys, while secondary data was collected from CBSL, MFI annual reports, and the Microfinance Information Exchanger (MIX). Main Findings: The study findings reveal that effective risk Management has a significantly positive relationship with the Suitability of the Microfinance Industry in Sri Lanka. Research limitations/implications: The study was limited to three districts out of 25 districts in Sri Lanka, and the sample frame was selected from three leading MFIs that agreed to participate in the research. The availability of time for this study was limited and could not permit the consideration of all MFIs and the entire country. Novelty/Originality: The study concludes that MFIs should have a proper and effective risk management process, but it should be adequately handled and communicated to borrowers. It implies that proactive risk management is essential to the long-term Sustainability of microfinance institutions (MFIs).