The objective of this report is to facilitate the understanding of the process, implications, and approach of commercialization among the stakeholders in microfinance in Sri Lanka. This study considers commercialization of microfinance at both micro and macro levels and analyzes the progress toward commercialization made to date in Sri Lanka's microfinance industry. Also explored are the remaining challenges and implications for various types of stakeholders, including microfinance clients, practitioners, government officials, and funding agencies, practitioners, government officials, and funding agencies. Major findings of the study includes: the microfinance industry in Sri Lanka is at a fairly early stage of commercialization MFIs serve about 80 % of the potential microcredit clients cooperatives play a dominant role in the microfinance market, although their performance varies considerably there is inadequate involvement in microfinance by commercial banks. Government policies and inappropriate interventions discourage new entrants into microfinance and hinder the commercialization of existing MFIs. The study concludes that a major shift in mindset on the part of government and funding agencies from seeing microfinance primarily as a poverty reduction tool to adoption of the financial systems view is needed to address the challenges to commercialization of microfinance in Sri Lanka. To advance microfinance commercialization, this change in perception will also need to be adopted by the microfinance practitioners themselves. The study is expected to contribute to a better understanding of the issues involved in commercialization of microfinance and lead to better approaches toward a sustainable microfinance industry that will provide a wide range of services to poor and low-income households not only in the Asia and Pacific region but also in other regions