Financial practices and efficiency of cooperative rural banks in Sri Lanka

Jayamaha, Ariyarathna and Mula, Joseph M. (2010) Financial practices and efficiency of cooperative rural banks in Sri Lanka. In: 1st International Conference on Business and Information: Researching Realities of Management Phenomenon (ICBI 2010), 6 June 2010, Colombo, Sri Lanka.

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Many small financial institutions (SFIs) in developing countries make great effort to provide efficient services to the poorhouse holders. It is generally accepted that maintaining the financial strength which is importance in corporate governance mechanism of institutions, has a close relationship with the efficiency of financial institutions, although they are small. However, there is a doubt of efficiency of SFIs in developing countries due to not maintaining appropriate financial practices. In Sri Lanka, recent collapses of many financial institutions also signal that they do not maintain sound financial practices.

Cooperative rural banks in Sri Lanka (CRBs) one of the formal SFIs in Sri Lanka which serve a large number of customers, deal with a large amount of funds and have substantial contributions to the rural financial sector during the last four decades. This paper seeks to test financial strength of cooperative rural banks in Sri Lanka (CRBs) and whether these strengths have a significant impact on efficiency of these institutions. The financial strength of CRBs was assessed using ratios of capital adequacy, liquidity, asset quality, loan to deposit, profitability, loan portfolio yield, operational efficiency, and operational self-sufficiency. The efficiency of CRBs in Sri Lanka was examined by using Data Envelopment Analysis (DEA), a non-parametric analytic technique. Based on the data extracted from CRBs’ financial statements, correlation coefficients showed that several financial practices have significant associations with the efficiency of CRBs in Sri Lanka. This confirms that efficient SFIs maintain sound financial practices which contribute to higher levels of efficiency.

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Item Type: Conference or Workshop Item (Commonwealth Reporting Category E) (Paper)
Refereed: Yes
Item Status: Live Archive
Additional Information: No evidence of copyright restrictions.
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 16 Mar 2011 04:54
Last Modified: 03 Jul 2013 00:32
Uncontrolled Keywords: efficiency; small financial institutions; financial strength; capital adequacy; liquidity; asset quality; loan to deposit; profitability; loan portfolio yield and efficiency of management
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150203 Financial Institutions (incl. Banking)
15 Commerce, Management, Tourism and Services > 1501 Accounting, Auditing and Accountability > 150199 Accounting, Auditing and Accountability not elsewhere classified
14 Economics > 1402 Applied Economics > 140207 Financial Economics
Socio-Economic Objective: B Economic Development > 90 Commercial Services and Tourism > 9001 Financial Services > 900101 Finance Services

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