Sri Lanka turns to microfinance to rebuild war zone

By Ranga Sirilal

COLOMBO, July 13 (Reuters) - Sri Lanka's government on Monday launched a $26 million microfinance loan programme to spur local agriculture and business in the former northern war zone, part of the president's plan to resettle 300,000 displaced people.

Dubbed the "Awakening North", the Central Bank said the 3 billion rupee ($26.12 million) loan plan will support "the resumption of economic activities in agriculture, livestock, fisheries, micro and small enterprises."

President Mahinda Rajapaksa has staked reconciling Sri Lanka after a 25-year war with the Tamil Tiger separatists on rebuilding the economy in the north and resettling the 300,000 members of the Tamil minority from there who are now in camps.

Analysts say he must swiftly resettle those people, demine the north and deliver a political package that the majority of Tamils -- and hardline elements from the Sinhalese ethnic majority in his ruling coalition -- will accept.

Under the loan plan, people can apply for loans of up 90 percent of 200,000 rupees for a maximum of five years' repayment, at an interest rate of 12 percent.

Private lenders Commercial Bank of Ceylon COMB.CM, Hatton National Bank HNB.CM, Seylan Bank and SANASA Development Bank, and state banks Bank of Ceylon and People's Bank will take part, the central bank statement said.

The banks will be refinanced at an interest rate of 6 percent on the funds the loan, the statement said. (Editing by Bryson Hull and Nick Macfie)