Sarvodaya Development Finance: rural-led economic growth

The finance company, founded on the principles of its parent, the Sarvodaya Movement, is helping rural businesses through the COVID storm.

Nilantha Jayanetti, Chief Executive at Sarvodaya Development Finance, believes the company has the answers to building a sustainable business postCOVID-19. Sarvodaya Development Finance (SDF) reported an impressive performance for the financial year ending March 2020. While industry profits fell 32%, SDF’s earnings grew 147% from a year earlier to Rs102 million. The company has a culture of dynamism and innovation, investing in technology to improve processes, generate cost savings and also give its mostly rural-based clientele a transformative digital experience. The finance company is unique because its profits go to its parent, the Sarvodaya Movement, which redistributes the money back to rural communities through various social development and poverty alleviation programmes. “This model is something the country needs at a broader level to revive the economy and place it on a sustainable growth trajectory,” Jayanetti says.

Why do you think Sarvodaya Development Finance’s model is what is required to revive the country’s economy in a post-COVID environment?

Jayanetti: The Sarvodaya Movement started in 1958 to support rural livelihoods and develop communities in this country underserved by the various sectors including banking industry. These communities had no access to finance, and financial literacy and discipline were at low levels. Sarvodaya created a development finance arm in 1984 to solve the problems. In 1994, a World Bank study on access to finance and rural development acknowledged Sarvodaya’s significant impact. At the time, we were the largest lender to the underserved communities. By 2011, we received a license to operate as a non-bank financial institutional and came to be called what we are known as today, Sarvodaya Development Finance. Several decades later, we at SDF continue to uphold the founding principles of this institution

What we mean by an alternative economic model is providing underserved communities and small businesses access to finance with spiritual values because they do not meet the requirements of conventional banks

which is to provide for the economic needs and spiritual wellbeing of com – munities. When we say spiritual wellbeing, we mean those values that foster harmony. Today, there are over 1,500 Sarvodaya societies across the country, each comprising 200-500 people of diverse ethnicities and religions. Our mission is to create an alternative economic model that fosters development and harmony among all people. This sets us apart from the 38 other companies of the finance company industry. What we mean by an alternative economic model is providing under – served communities and small businesses access to finance with spiritual values because they do not meet the requirements of conventional banks. We have 51 branches/customer service centres with all but one office in Colombo. In some cases, we are the only financial institution present in a particular area. Over 80% of our loans are disbursed outside the Western Province. Around 80% of Sarvodaya members and over 60% of our borrowers are women because gender equality is important to us. We also have an entrepreneurship programme for youth.

 How does SDF develop rural communities by assisting business to grow?

Jayanetti: We focus on developing cottage industries, farming, and other micro and small businesses. For example, the village of Karandeniya is famous for growing Cinnamon. Around 90% of the global cinnamon demand is supplied from Sri Lanka, yet this village has no finance com – pany apart from us. We are helping cinnamon cultivators by giving them access to credit to expand their busi – nesses and gain access to export markets. We help communities discover and develop comparative advantages and foster trade among several communities.

We also create access to markets in major cities like Colombo, Kandy, and Jaffna. We have introduced suppliers to the Good Market and the supermarket chains of the country, while adding retail outlets in main economic centres.

We make sure borrowers use the loans to develop livelihoods or a business. Our lending for consump – tion is as low as 2% of the total loan book. We do not get our clients into a debt trap by selling loans or other credit products just so that we can achieve our own business targets. Our target is to create sustainable businesses that grow. Before lending, we ensure the business we lend to has a market to sell its good and services. Outcomes and objectives are made clear to borrowers. We do not just lend and ask for rentals each month. We provide our clients with professional management training in collaboration with the Postgraduate Institute of Management, SLIM, Institute of Packaging, and Export Development Board etc. For instance, we transformed a community of pepper farmers into a value-added export industry by giving them access to credit and technical knowledge on processing and trading across borders. We have a client who started lemongrass cultivation with a Rs50,000 loan and built a thriving export business to Thailand.

We make sure borrowers use the loans to develop livelihoods or a business. Our lending for consumption is as low as 2% of the total loan book. We do not get our clients into a debt trap by selling loans or other credit products

 How has COVID-19 impacted your clients and your business?

 Jayanetti: The economic impact of the pandemic hurt everyone. We provided moratoriums to more than half of our loan customers but encouraged them to continue servicing their loans because it is important not to lose that habit. Many of our borrowers did service their loans during and after the lockdown period. We reported a Rs8 million loss in the first quarter but bounced back strongly to report a profit of Rs21.5 million during the month of October — the highest profit we have ever made. This proves that a genuine approach to uplifting livelihoods and business benefits everyone. I passionately believe the country needs a model similar to Sarvodaya Development Finance. Sri Lanka can get out of this crisis quickly, fast track growth, and steer the economy on sustainable trajectory if we adopt a bottom-up approach. Financial intermediaries need to go rural, provide the credit that will improve financial inclusion, and impart their knowledge to improve financial literacy and discipline across underserved communities. We deployed an Asset and Liability Management System that allows us to have a bird’s eye view on transactions and allows to make decisions on our feet. We are continuing to invest in digital channels so our customers can carry out their transactions, pay their bills and even gather weather and market information that is so critical to their rural-centric ventures. We are attempting to transform rural communities by introducing digital technology into their daily lives, and I believe the impact will be a profound one because Sarvodaya Development Finance is laying the foundation to uplift the entire economy.