The issue of regional differences in development has moved to the center of the development debate in Sri Lanka, partly after the release of regional poverty data. For the past many years, there have been significant and increasing differences between the Western province and the rest of the country in terms of per capita income levels, growth rates of per capita income, poverty rates, and the structure of provincial economies. The structure of the report is as follows: chapter two looks at the poverty/growth/agriculture nexus in the poorest regions of Sri Lanka.

This review's objectives were to examine the structure and performance of the agricultural research and extension systems (public and private) at the central and provincial levels, identify successes as well as constraints to improving the system s effectiveness for fostering innovation, and propose options for further policy and institutional development, drawing on lessons from international experience. The review focused principally on nonplantation crops, although its main recommendations apply across the agricultural sector.

This report demonstrates that financial cooperatives can be sustainable providers of financial services in rural areas and development assistance needs to consider supporting them as a means to enhance access to rural finance. It does not suggest that financial cooperatives are the only providers or the preferred channel in all circumstances. For financial cooperatives to function as sustainable institutions, governments need to provide an enabling environment, not exercise excessive control that restricts growth and consolidation, and not use them as channels to provide subsidized credit.