The Department of Samurdhi Development, which for decades has been regarded as a cornerstone of Sri Lanka’s poverty alleviation efforts, is once again at the centre of national attention.
A recent audit report covering the financial year that ended on 31 December 2023, together with new figures presented by the department’s Director General in mid-2025, has brought to light a series of challenges that cut to the heart of the institution’s credibility.
The findings reveal billions of rupees tied up in unrecovered loans, weaknesses in financial controls, and structural issues in recovery mechanisms. At the same time, the department continues to embark on ambitious new initiatives designed to empower hundreds of thousands of families across the country.
This juxtaposition of expanding responsibilities and unresolved arrears has led to mounting questions about the sustainability of Sri Lanka’s largest welfare and empowerment programme.
The ‘Samurdhi’ mandate
Since its inception in the 1990s, the ‘Samurdhi’ programme has been central to the State’s strategy to alleviate poverty. It has operated through a vast network of community-based banks, which are unique financial institutions that mobilise savings from beneficiaries, offer credit facilities, and support microfinance programmes while administering welfare payments at the same time.
The concept is that these banks are both financial intermediaries and vehicles for social development. They are intended to provide poor families with access to credit and investment opportunities while encouraging a culture of savings.
The system is therefore more than just a welfare handout, as it aims to generate economic activity and help households build self-sufficiency.
Samurdhi Development Department Director General C.D. Kaluarachchi, speaking to The Sunday Morning, highlighted the department’s achievements in deposit mobilisation. He explained that campaigns were regularly conducted to promote deposits.
“We accept deposits and from October onwards, targeting Children’s Day, we intend to further promote deposits. For Avurudu, there was a programme to increase deposits whereby we gained Rs. 4.4 billion worth of deposits,” he stated.
The cumulative result of these campaigns has been impressive. As of 30 June, deposits held by ‘Samurdhi’ community-based banks had reached Rs. 162.89 billion. This demonstrates that the programme is not only disbursing loans but also successfully collecting savings, which form the backbone of its financial system.
Employee loan schemes
Despite this positive aspect, the audit report has revealed serious weaknesses. One of the most striking findings relates to loans issued to the department’s own employees.
According to the report, by the end of 2023 there was a sum of Rs. 14.2 billion in loans outstanding under staff schemes that included consumer, housing, and distress loans. What made this finding even more troubling was the fact that the loans had been issued contrary to the Establishments Code, which sets out the financial rules governing public sector employees.
Of the total, Rs. 290.6 million had already been provisioned as bad debts, reflecting a failure to recover significant sums. In addition, the Employee Revolving Loans Fund, which was established to facilitate staff borrowing, had been suspended in 2020, yet Rs. 30.449 million was still outstanding by the end of 2023.
Another major issue highlighted in the report was the failure to settle funds borrowed during the 2020 crisis. At the time, the Government directed that a special allowance of Rs. 5,000 be paid to low-income families in order to provide relief during the pandemic. For this purpose, funds amounting to Rs. 32,418 million were borrowed from banks. However, as of 31 December 2023, this amount had not been reimbursed to the ‘Samurdhi’ community-based banks.
The audit report has recommended that urgent action be taken to repay these borrowings because failure to do so was placing a strain on the financial position of the banks and undermining their ability to continue normal operations.
The audit has also scrutinised the loans issued to migrant workers. These loans were considered important because migrant workers constitute a significant component of Sri Lanka’s economy through remittances.
Between the inception of the scheme and 2018, Rs. 3.55 billion was disbursed to 11,929 migrant workers. However, the arrangement was governed by a Memorandum of Understanding (MOU) with the Sri Lanka Bureau of Foreign Employment, and this MOU expired in March 2018.
By October 2023, no new agreement had been signed. As a result, a remaining loan balance of Rs. 193 million remained unrecovered, highlighting the consequences of weak institutional coordination.
Unsettled balances
Perhaps the most concerning figure reported in the audit relates to the overall loan arrears of the ‘Samurdhi’ community-based banks. As of the end of 2023, arrears stood at Rs. 73.8 billion.
The report has also noted that provisions for bad debts had been increased from 7% of arrears in 2022 to 8% in 2023. While this indicates that the department was attempting to acknowledge the risk of non-recovery, the sheer size of the arrears demonstrates that the institution was facing a systemic challenge in enforcing repayment.
Since the publication of the audit, further figures released by the Director General have painted a picture of continuing strain. As of 30 June this year, the total outstanding loans across the ‘Samurdhi’ network had reached Rs. 103.16 billion. Although the Director General emphasised that the Non-Performing Loan (NPL) rate had been brought down to 4.1%, the contrast between this figure and the audit’s findings of Rs. 73.8 billion in arrears at the end of 2023 suggests that different measures are being applied.
The audit report has focused on arrears in repayments, while the Director General highlighted the narrower category of NPLs. Both perspectives show that although the department is maintaining high levels of lending activity, repayment performance remains a challenge that has not been fully resolved.
The deposit base also provides an interesting contrast. According to the audit, by the end of 2023, total investments of the ‘Samurdhi’ banking system stood at Rs. 242 billion, with only Rs. 73.8 billion, or about 30%, given out as loans. By contrast, the Director General’s 2025 figure showed that Rs. 162.89 billion had been mobilised as deposits, with 63.4% already disbursed as loans.
This shift from under-lending relative to investments in 2023 to a much higher loan-to-deposit ratio in 2025 demonstrates that the department has become more aggressive in deploying funds into loans. While this may empower more families, it also magnifies the risk if repayment discipline falters.
Departmental initiatives and loan recovery
The department has taken steps to address these concerns. Kaluarachchi noted that loan ceilings had been expanded to provide greater access to capital. “Earlier we gave out loans worth Rs. 2 million, but now we have increased it to Rs. 5 million,” he said. While such figures may need clarification, they reflect a policy of scaling up support for enterprise development.
In addition, the department has introduced new loan products targeted at ‘Aswesuma’ beneficiaries who are part of another national welfare scheme. These ‘social empowerment loans’ are provided at concessional interest rates of 4–5% under what has been termed the ‘Samurdhi Savibala Loan Scheme.’
“Loan recovery continues to be conducted through community-level monitoring. Officers are deployed in each grama niladhari division, and in cases of non-payment, managers may personally visit households to encourage repayment.
“Legal mechanisms are also in place. Under the provisions of the 1995 gazette, the department lacked authority to initiate court proceedings, but under a 2013 gazette, it gained the power to go to court in special cases,” Kaluarachchi said, adding that such authority was exercised sparingly, as the majority of recoveries were pursued through personal contact with borrowers.
Community Empowerment Prog. for 2025
At the same time, the department is moving ahead with new programmes. The most ambitious is the Community Empowerment Programme for 2025, which is expected to empower 400,000 families with an allocation of Rs. 56.06 billion.
Of this total, Rs. 1.09 billion will come from the Treasury to support 105,400 families through initiatives such as youth employment in the hotel industry, self-employment projects, and the establishment of ‘Suwa Bojun’ centres. A further Rs. 400 million from the Samurdhi Social Security Fund will be used for vocational training and micro-enterprise promotion for 32,500 families.
The largest portion, amounting to Rs. 51.57 billion or 92% of the entire allocation, will be provided from the community-based banking funds. This will support three major loan programmes, including a subsidised interest loan scheme, the ‘Ranpataha’ loan programme, and the annual loan programme which alone accounts for Rs. 32.92 billion.
Finally, Rs. 2.998 billion will come from foreign financial assistance, particularly pilot projects funded by the Asian Development Bank and World Bank, aimed at 23,000 families.
The scale of this new initiative is striking when compared with the existing loan burden. The 2025 programme’s allocation of Rs. 56 billion is just over half of the Rs. 103 billion in outstanding loans reported by the Director General. This means that while the department is planning for major new investments in empowerment, it is also carrying a massive legacy of debt.
The success of the new programme will depend heavily on whether loan recovery mechanisms can be strengthened and whether the arrears problem can be reduced to sustainable levels.