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Indian Journal of Finance and Banking; Vol. 3, No. 2; 2019 
ISSN 2574-6081   E-ISSN 2574-609X 

Research Article                                  Published by Centre for Research on Islamic Banking & Finance and Business, USA 

 

 
43 

                      

Impact of Microcredit on Living Standard of Dairy Entrepreneurs: Special 
Focus on Oddusuddan DS Division in Mullaitivu District 

 
 

Saseela Balagobei 
Department of Financial Management 

 Faculty of Management Studies & Commerce 
 University of Jaffna, Sri Lanka 
E-mail: saseelab@univ.jfn.ac.lk 

 
 Sankeetha Aravinthakumar  

Department of Financial Management 
 Faculty of Management Studies & Commerce 

 University of Jaffna, Sri Lanka 
 

Abstract 
Microcredit is part of micro finance, which provides a wider range of financial services for low income people. Micro credit 
serves as a vital role for Living standard of poor people in the developing countries as well as in Sri Lanka. In this Study 
Oddusuddan DS division in Mullaitivu district was selected as research area. After the 30 years conflict situation most 
people in the Oddusuddan area in Mullaitivu district are subordinate to the poverty line, because most of the displaced 
people who are female other than male staying here. Women lost their male relatives in struggle, and forced to take a 
responsibility of their family in order to look after their children, aged parents and their male relatives.  Micro credit helps 
the poor people particularly women in effective ways in order to create income generating activities.  The prime objective of 
this study is to investigate the impact of Microcredit on living standard of dairy entrepreneurs in Oddusuddan DS division 
in Mullaitivu District. In the rural areas of Mullaitivu, Oddusuddan Divisional Secretariat Divisions 100 dairy 
entrepreneurs were selected as the sample size of population. The selected entrepreneurs who have received loan from 
samurdhi bank for dairy farming activities in Oddusuddan DS Division. Primary data were used for gathering information 
and quantitative analysis was carried out to find out the results. In the quantitative analysis the correlation and regression 
methods were employed to examine the hypotheses by using SPSS. The result of this study concluded that there is a positive 
impact of samurdhi micro credit on living standard of dairy entrepreneurs in Oddusuddan DS Division. In addition to this, 
using micro credit facilities create more job opportunities and variety of economic activities and improve household 
education, income, saving and heath condition of the people. The study recommends that micro credit institution should 
consider improve the living standard of dairy entrepreneurs through increase the loan amount with lower interest rate. 

 
 
1. Introduction 
Microcredit plays a vital role in significant innovations in development policy of the past twenty-five years. Microfinance is 
not a new concept; it comes from the development of Grameen bank concept introduced by Mohammad Yunus in 
Bangladesh. But it traced back to 1906 in Latin America. Thus, there was evidence for in the social banking, group-based 
lending, self-help group concepts, etc. Normally rural financial market can identify as formal financial market and informal 
financial market which act as financial intermediaries. In developing country as a Sri Lanka formal financial institution 
doesn’t serve financial services to the rural sector efficiently. Moreover, Low income people cannot be satisfied regarding 
formal financial institution’s lending procedures. Because they haven’t any fixed income way or any collateral to obtain 
financial services. So, the more people obtain the loans from informal financial institutions or informal money providers as 
low-income people are facing poorer situation and also, they save their funds in informal channels. So, they don’t provide 
any guarantee for that savings. The microfinance activities have given a financial solution for that kind of people. 

Further microfinance comes with the main objective of providing financial services to the poor segments of the society, 
contributes its role in the form of financial development with a primary focus on enhancing the living standard through 
poverty alleviation. In the last two decades, there are several modifications in the microfinance sector such as, introduction 
of micro insurance, diversification of products, provide instructions and several types of collateral free flexible loan as the 
capacity of the borrowers. 

Microcredit is part of micro finance, which provides a wider range of financial services, especially savings accounts, to 
the poor. Many traditional banks subsequently introduced micro credit despite initial misgivings. The United Nations 
declared 2005 as the international year of micro credit. As of 2012 microcredit is widely used in developing countries and is 
presented as having enormous potential as a tool that can be helpful to possibly reduce feminization of poverty in 
developing countries. 

 
Keywords: Microcredit, Dairy Entrepreneurs, Living Standard.   



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It is the extension of very small loans (microloans) to impoverished borrowers who typically lack collateral, steady 
employment, and a verifiable credit history. The microcredit movement aims to extend small amounts of capital to poor 
borrowers throughout the world, typically to facilitate income-generating self-employment activities. Thus, it has 
popularized creative, perhaps ingenious, lending techniques (Ahlin & Jing, 2008). On other hand improvement in living 
standard of low-income society in developing countries is achieved by improving health, education, income level, physical 
asset ownership and other living standards. This phenomenon diminishes poverty and foundations to achieve poverty 
alleviation objective gradually. Poverty can identify as where people cannot meet their basic needs for survival, such as food, 
water, clothing, shelter, sanitation, education and health care. 

As per Barr (2005) in the global situation, there are about three billion people, half of the world's population, living on 
the income of less than two dollars a day. Among these poor communities, one child in five does not live to see his or her 
fifth birthday. To avoid this situation as early mentioned micro credit is the best mechanism for improving the living 
standard of the poor people. 

Poverty is a mainly rural phenomenon in Sri Lanka and four sectors of poverty can be identified in Sri Lankan society, 
such as rural, coastal, urban and state sector. Low level of living condition also affects the government policies and their 
development programs. 

Currently, there is a wide range of institutions that are involved in providing microfinance services to low income 
groups. These include Co-operative Societies (e.g. TCCSs), hundreds of local and international Non-governmental 
Organizations (NGOs), commercial banks (both state-owned and private) and development banks such as the Regional 
Development Banks (RDBs) and the Sanasa Development Bank (SDB). In addition, the Government’s Samurdhi Savings 
and Credit Scheme established in 1996 is presently one of the largest social mobilization programmes in Sri Lanka. It was 
the national program for increase living standard of the low-income people under government supervision. It was a valuable 
certificate to low income people when engage with financial such poverty alleviation programs and when obtaining financial 
facilities for that program. 

Mullaitivu is considered one of the more prosperous districts in comparison with other districts in the North. However, 
poverty raised by inequalities in income, employment, infrastructure, health and educational facilities is trickled within the 
post-war situation.  Prior to the explosion of the civil conflict, Mullaitivu enjoyed a healthy economy.  The foreign aids are 
used to develop the local economy in Sri Lanka most probably in the war affected areas specifically in Mullaitivu because 
most of the displaced people who are female other than male staying here.  This study deals with the empowerment of rural 
dairy entrepreneurs through the micro credit activities and the challenges and scenarios under the post war development in 
selected rural areas in Mullaitivu District. Therefore, this study id endeavour to investigate the extent to which these micro 
credit activities of Sri Lanka lead to enhance the living standard of poor people in Oddusuddan DS Division.  
 
2. Problem of the Statement  
It is accepted from the researches that the microcredit is an important tool to enhance the entrepreneurship development in 
the developing countries as well as in Sri Lanka.  In the post war context, it has been realized from the past experiences in 
Sri Lanka. However, there are some challenges and difficulties facing by entrepreneurs for their sustainable development.   

The most people in the Oddusuddan area in Mullaitivu district are subordinate to the poverty line. The economy of the 
district mainly depends on agriculture and fishing. The agriculture sector is the main income generating source in this 
district and the livestock is an important sector of the people of Oddusuddan division. Livestock as a high priority sector 
for future growth, investment and poverty alleviation. Livestock farming is traditional activity of the Oddusuddan people. 
Livestock provides not only the supplementary income but also a main source of animal protein. 

However, people faced various tribulations on livestock framing in this area such as death of the cattle due to the war 
context and continuous climate changes, due to the high temperature and urbanization the water has been drained and 
grazing lands have been destroyed thus maintenance cost of the livestock increased. 

As well higher cost of cattle feed and increase in the cost of labour have an impact on the development of dairy farming. 
So, the people need capital to manage the maintenance cost and purchase the new cattle. After the resettlement people faced 
lot of hardship to mobilize capital to start and continue to run the self-employment activities. The Micro credit becomes a 
major tool for development of entrepreneurs in Sri Lanka.  

Micro finance Institutions as part of their core business provide credit facilities to the entrepreneurs. In addition to the 
financial services, it provides social intermediations, enterprise development and social services like business and skill 
training, financial and business management and capacity building to improve their capacity on managing the resources 
granted them to facilitate the self-employment activities.  Further, the numbers of micro finance institutions in Mullaitivu 
District growing rapidly. However, their wide existence does not match with the extent of reduction in the major challenges 
that affect the growth of self-employable activities in Mullaitivu. So, there is a way to mobilize such capital through the 
micro credit.  

However, the most of the researches have been done regarding the women empowerment, entrepreneurship development 
and micro Credit programmes in worldwide, it is very little bit in Sri Lanka especially in Mullaitivu District.  This study 
attempts to fill this research gap and raising the following research question as a research problem:   

How does micro credit impact on living standard of dairy entrepreneurs (special focus on Oddusuddan DS Division in 
Mullaitivu District)? 



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45 

             

3. Objective of the Research  

 The prime objective of this research is to investigate the impact of microcredit on living standard of dairy 
entrepreneurs in Oddusuddan DS division in Mullaitivu District. 
 

4. Literature Review and Hypotheses Development  
Kaluarachchi & Jahfer (2014) investigated micro finance and poverty alleviation in Sri Lanka using selected microfinance 
beneficiaries from Polonnaruwa District. Attention was mainly given to identify the contribution of microfinance for the 
poverty alleviation. Accordingly, loan amount, repayment ability, accessibility of getting loan and interest rate were 
identified as significant factors that lead to reduce poverty among people. Finding further indicated that microfinance 
initiatives of the area had significantly uplifted lives of the poor.  

Jayasuriya (2007) investigated the impact of microfinance on poverty alleviation in Sri Lanka through the impact of 
Samurdhi saving and credit programme for uplifting living condition of the poor. The study collected data from five 
Samurdhi bank and 20 Samurdhi holders randomly from Kegalle District. Findings of the study indicated that Samurdhi 
credit scheme helps poor people to sustaining their current survives. 

Further in Sri Lankan context the microfinance and livelihood development in poor coastal communities in Eastern Sri 
Lanka was examined by Thilepan & Thiruchelvam (2011). This study investigated the effectiveness of microfinance 
support for coastal communities’ livelihood development in Trincomalee District. The study found that there is a 
significant impact of microfinance on people’s income and saving level. 

Abel, Grace, Willie (2014) investigated factors influencing poverty alleviation amongst microfinance adopting 
households in Zambia. Findings specified that majority of respondents could improve their well-being through microfinance 
initiatives. A study done by Awele Oguejiofor & Unachukwu (2014) identified interest rate, small size of loans, short loan 
repayment cycles, and very frequent group meeting as factors that affect successful graduation of microfinance clients from 
microfinance programs in Philippines. 

The impacts of microfinance institutions on eradication of poverty in Meru South Sub County were examined by 
Makunyi (2017). The target population for this study comprised of all beneficiary households of Microfinance Institutions 
(MFIs) in Meru South Sub Country and sample was 30% of the target population. Findings of the study highlighted 
microfinance institutions as a very strong tool in poverty alleviation process at household level. In this process micro credit 
empowers the poor, enables them to cope with and overcome many of problems that they face. Further, microfinance loans 
were found to have led to establishment and expansion of businesses, acquisition of shelter, education, access to health care 
and opening up of opportunities for the poor to improve their living standard. 

Idowu & Salami (2011) also examined impact of microfinance bank has on standard of living of hairdressers in Oyo 
State. A total of 49 hairdressers who registered with Ogbomosho North LGA were used as study sample. The findings of 
the study indicated that there is a significant relationship between Microfinance bank efforts and standard of living of 
hairdressers in Ogbomoso North LGA. Similarly, a positive impact of microfinance on living standard was found in 
Nigerian context by Imoisi & Opara (2014). 

Kenduiwa & Jahfer (2016) investigated the influence of smallholder dairy farmers’ participation in microfinance on 
breed improvement in dairy farming in Longisa Sub-Country, Bomet Country, Kenya.Using ordered logistic regression this 
study revealed that the amount of microfinance credit accessed influenced the type of breeds kept by smallholder dairy 
farmers. Dairy breeds kept could be attributed to the amount of MFI’s credit accessed. The most common type of dairy 
cattle breed in the study area was indigenous cattle. Smallholder dairy farmers should take advantage of the available and 
upcoming microfinance institutions in their effort to obtain the necessary finances for breed improvement. 

Taj et al., (2012) found that micro credit significantly increased livestock population in agriculturally landless and land 
owning families. The special emphasis of the study was on the women livestock raisers. The study revealed the impact of 
institutional credit in terms of women empowerment, improved households’ income and consumption.   

Boney Bose (2017) investigated the effect of microfinance on dairy sector for poverty alleviation in Kerala. This study 
indicates that micro finance has made rapid changes for the beneficiaries of dairy sector and it has improved their standard 
of living.  Although the dynamics underlying the micro finance industry have shifted to a new phenomenon that many 
decision makers still do not fully understand, the risks need to be managed efficiently in the industry of micro finance. The 
members working under micro finance are able to lead a better life compared to when they were before. They are able to 
provide better facilities for their family and also provide better education to their children. The next decade will most 
probably see a continuation of this growth. Such growth is not only sought by many MFIs but also needed in most 
countries because the unnerved and underserved markets continue to remain large. There should be also good support from 
government side. Further schemes should be introduced to support the dairy farmers, proper market and training 
programmes should be given for them. Proper awareness also should be given for dairy farmers to increase production and 
improve the productivity of milk. 

Khandker (1998) conducted a study on income and employment effects of micro-credit programmes in Bangladesh. 
The article has attempted to quantify the village level impacts of the three most important micro-credit programmes of 
Bangladesh, namely Grameen Bank, Bangladesh Rural Advancement Committee (BRAC), and Bangladesh Rural 
Development Board's (BRDB) RD-12 project. Descriptive and econometric analyses showed that these programmes have 



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46 

             

positive impacts on income, production, and employment, particularly in the rural non-farm sector. Also, growth in self-
employment was achieved at the expense of wage employment, which implied an increase in rural wages.  

Khan & Rahaman (2007) investigated impact of microfinance on living standards, empowerment and poverty 
alleviation of poor people in the Bangladesh. From analysis of data, the study found that microfinance has a positive impact 
on the standard of living of the poor people and on their life style. Study further indicated that microfinance has not only 
helped the poor people to come over the poverty line, but has also helped them to empower themselves in the Bangladesh. 
Based on the literature review the following hypotheses have been developed in order to conclude the results.  

H1: There is a significant impact of micro credit on living standard of dairy entrepreneurs 
 
5. Conceptual Framework 
The conceptual model which is developed based on the literature review represents the association between micro credit and 
living standard of dairy entrepreneurs. In this research the main problem is that how micro credit impact on living standard 
of dairy entrepreneurs. This problem could be conceptualized based on the factors assumed that can cause for this problem. 

 
Figure 1. Conceptual Model 

 
Micro credit is measured by loan size, loan repayment period and loan interest whereas the living standard considers 

income, saving, employment status, educational level and health care. 
 
6. Methodology 
Research methodology focuses on the research process a kind of tools and procedures to be used. It describes research 
design, sampling procedure, data sources, instrumentation, and mode of analysis 

6.1 Data Collection 
Data collection is important stage to gather the required information and maintains the integrity of research. In this study 
the primary data has been collected by using questionnaire to identify the impact of micro credit on living standard of dairy 
entrepreneurs in Oddusuddan DS Division. Questionnaires were issued to get the data from selected 100 Samurdhi 
beneficiaries from 27 Gramaniladhari divisions in Oddusuddan Ds division. 

6.2 Population and Sample 
Two-stage random sampling technique is suitable for selecting samples to achieve the research Objective. In the first stage of 
random sampling, Samurdhi bank had been selected randomly for data collection purpose.In the second stage, the dairy 
entrepreneurs who live in the Oddusuddan Ds divisions were selected. Mullaitivu district consist of 6 divisional secretariat 
division, 136 Gramaniladhari divisions and 632 villages. The population of this study is 257 dairy entrepreneurs and the 
information has been collected from 100 respondents who were selected randomly. 

6.3 Empirical Model 
To determine the impact of micro credit on living standard, an empirical model was used and stated as follows:  

Y =β0+β1X1+ β2X2+β3X3+Ɛ 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Micro credit 

 

Living standard 

Loan Size 

Loan repayment period 

Loan interest 

Saving   

Income  

Employment status 

Educational level 

Health care 



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Where, 

β0, β1,β2,β3 are the regression coefficient 
Y - Living standard (dependent variable) 
X1 - Loan size 
X2 - Repayment period 
X3 - Interest rate 

Ɛ - Error term 
 

7. Results and Discussion 
7.1 Correlation Analysis 
The Pearson correlation coefficient is presented to illustrate the relationship as well as the statistically significant between 
independent variables and dependent variables. In addition, Pearson’s correlation analysis method is chosen because the 
correlation can be compared without regarding to the amount of variation exhibited by each variable separately. Purpose of 
the correlation analysis in this study is to find out the significant relationship between micro credit and living standard.  
 
          Table 1. Correlations between micro credit and living standard 

Source: Survey data 2019 
 

Table 1 represents the correlation coefficient between micro credit and living standard of dairy entrepreneurs in 
Oddusuddan DS division. The value of correlation between micro credit and living standard is 0.715 (p=0.000 < 0.01) 
which represents a significant and positive association between microcredit and living standard at 0.01 levels. Therefore, 
microcredit is strongly positive associated with living standard of dairy entrepreneurs. 
 
7.2 Regression Analysis 
Regression analysis which is a statistical process used to examine the impact of independent variable on dependent variable. 
In this study regression analysis is employed to examine impact of micro credit on living standard of dairy entrepreneur in 
Oddusuddan DS division. The results of the regression analysis are given below. 
 

Table 2. Regression Analysis 
 

Coefficientsa 

Model Unstandardized Coefficients Standardized 
Coefficients 

t Sig. 

B Std. Error Beta 

1 (Constant) 2.363 5.743  .411 .682 

Micro 
credit 

1.783 .176 .715 10.130 .000 

R=0.715   Adjusted R Square=0.507 F=102.610 Sig=.000b 

Dependent Variable: Living Standard 

Source: Survey data 2019 
 

The above table 2 indicates that the summary of coefficient of regression between the micro credit and living standard. 

The coefficient of regression (β) 1.783 for micro credit which indicates if micro credit increased by 1 or 1% then Living 
standard also will increase by 1.783. The P- value for two tailed test is 0.000, which is less than 0.01 significant levels 
therefore there is a significant positive impact of micro credit on living standard of dairy entrepreneurs. 

 
 

 

 Living 
Standard 

Micro Credit 

Living standard Pearson Correlation 1 .715** 

Sig. (2-tailed)  .000 

N 100 100 

Micro credit Pearson Correlation .715** 1 

Sig. (2-tailed) .000  

N 100 100 

**. Correlation is significant at the 0.01 level (2-tailed). 



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48 

             

8. Conclusion and Recommendation 
The results demonstrate that the Samurdhi micro credit plays an important role on reducing poverty, improving income of 
household, improves access to children’s education and also supports improving self-employment activities of poor people.  
It is found that interest free loans could be used as a powerful tool against poverty. Education and training should be 
provided for micro credit beneficiaries on how to efficiently utilize the funds. Interest charged on micro credit should be 
reduced. Further management and staff of micro credit institutions must be given the needed training and education to help 
build and strengthen the skill, competencies and abilities for effective service delivery. Efforts should also be made to reach 
the poor who are the target of micro credit policies and programs. 

Loan products should be of a longer duration to give beneficiaries opportunities to generate future income out of the 
borrowed money. Loans should not be callable by the financial institution prior to maturity. Nowadays Samurdhi 
programme has increased their level of credit for the purpose of beneficiaries.  

As the micro credit institutions are developing very rapidly, which are increasingly concerned with developing new 
products and services. The microcredit institutions have experienced dramatic growth during the last two decades, in general 
and the last decade, in particular. This study indicates that Samurdhi micro credit has made rapid changes for the 
beneficiaries of dairy sector and it has improved their standard of living.  

The members under the samurdhi credit are able to lead a better life compared to when they were before. They are able 
to provide better facilities for their family and also provide better education to their children. There should be also good 
support from government side. Further schemes should be introduced to support the dairy farmers, proper market and 
training programmes should be given for them. Proper awareness also should be given for dairy farmers to increase 
production and improve their living standard. 

 
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