Sri Lanka extends financial access to villagers

Sri Lanka has made a commitment to expand financial access to the poorest of the poor people living in remote rural areas through a financial inclusion scheme, official sources divulged.

Sri Lanka is a land of 14,000 villages and a majority of the country’s population, nearly 80 per cent, lives in villages.

Financial needs of these villages are being served by an estimated 14,000 financial institutions in the country, which directly or indirectly provide micro credit facilities.

A majority of these financial institutions are either financial NGOs, not-for-profits or organisations that follow local cooperative societies.

Appropriate strategies need to be taken to address the problems of the rural communities for the success of any development programme, it was pointed out.

Access to formal finance is hindering the growth of small and medium enterprises. The formal economy and banking sector have so far failed to recognise assets like cash, livestock, agricultural implements, self-built housing and workshops or jewellery, which unbanked groups are used to invest in.

The National Financial Inclusion Strategy (NFIS) is to be developed by mid next year to promote a more effective and efficient scheme to improve financial inclusion countrywide, a senior official of the Finance Ministry told the Business Times.

The main focus of the strategy will be on digital finance and making a cashless society.

IFC, a member of the World Bank Group will be providing technical assistance to develop the NFIS in consultation, compromise and consensus with members of the public and private sectors, civil society organisations and academics.

Central Bank Governor Dr. Indrajit Coomaraswamy told a recent media conference, “It (Central Bank) will provide guidance on the directions for the country to achieve an inclusive financial system where people have effective access to a range of affordable financial services.”

Ministry of National Policies and Economic Affairs, Ministry of Finance and Mass Media, IFC and all financial sector stakeholders are being involved in the development of this strategy.

Sri Lanka has been successful in reaching the people in remote rural areas providing financial access through banks and non-bank financial institutions with extensive branch networks, the official said.

At present there are 18.6 branches for every 100,000 adults, he said adding that 83 per cent of the adult population (men and women equally) have accounts with formal financial institutions.

A major attempt has been made to simplify digital banking to pave the way towards financial inclusion in rural areas.

The Central Bank is cautiously allowing the expansion of bank and finance company branches where there were no such financial services in rural areas.

It has also encouraged lending to the micro finance sector, SMEs, to agriculture, youth and women, while facilitating and implementing refinance, interest subsidy, and credit guarantee schemes targeting the micro, small and medium enterprise (MSME) sector.

Officials said that Sri Lanka is promoting technology and digital finance to improve access to financial services in a cost effective manner. Technology for enhancing financial inclusion emerged with the 2012 regulatory framework for categorising mobile money.

However, despite having higher access to mobile networks and the Internet, the use of technology for financial transactions in the country was very low as it is linked to cultural and behavioural aspects of the low-income population, recent research revealed.

This segment seems to prefer cash for all financial transactions, and prefers travelling to a bank branch for their financial transactions.