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Wednesday, 21 March 2018 00:58 - - {{hitsCtrl.values.hits}}
By Charumini de Silva
The Central Bank in consultation with the International Finance Coperation (IFC) is championing financial inclusion by convening relevant stakeholders to draft Sri Lanka’s first national financial inclusion strategy (NIFS), which will be implemented from mid-2019.
Inaugurating the development process for Sri Lanka’s NFIS, Central Bank Governor Dr. Indrajit Coomaraswamy said in Colombo yesterday that they had drafted a detailed work plan in formulating the NIFS in consultation with the IFC, which is expected to be operational from the middle of next year.
“Financial intervention is the lifeblood of an economy. So access to financial services is a key determinant of the life chances of our people. This makes the NIFS a key platform for achieving inclusive and regional balanced growth,” he added.
It was pointed out that through the formulation and implementation of a national financial inclusion strategy, Sri Lanka was joining over 60 countries that have launched or are in the process of developing NIFS.
However, calling the political situation in the country an elephant in the room, Dr. Coomaraswamy insisted restoring political stability was of paramount importance for continuous economic progress.
“I am not aware of any country that has made significant economic progress without political stability. It is particularly important at this time because I think, and I hope I am not being overly optimistic, I think we were beginning to see some progress in the positive direction, both in terms of strengthening the macroeconomic fundamentals of the country as well as putting into place a framework that will give us sustainable growth,” he pointed out.
As Sri Lanka has a wide range of financial service providers, offering high levels of physical access to branches, he stressed the task of enhancing financial inclusion was indeed challenging.
While considerable advances have been made, he said there were several bottlenecks in achieving greater financial inclusion. “We must strive to provide more accessible, effective, efficient and affordable financial services, which are responsive to the needs of the population. This is a prerequisite for broad-based and inclusive growth which benefits every citizen of our country.”
Dr. Coomaraswamy said the customers of financial institutions must be able to access financial services without any fear of being harassed or getting into a debt trap.
He believes Sri Lanka has a lot of untapped potential in the use of electronic and mobile systems for banking transactions. “The Central Bank is focused upon improving payments and settlement systems and encouraging the use of electronic and mobile payment systems, which would assist in increasing financial inclusion.”
To improve access to credit, he noted that Sri Lanka needed a more dynamic approach which entails a combined effort from all stakeholders, including state institutions, formal financial service providers and other relevant professional bodies supported by a cohesive policy framework.
“For this, the formulation of a NIFS was an essential policy and strategic tool that will coordinate and implement cross-cutting actions and reforms, to increase financial inclusion. It will without a doubt assist the authorities in the critical task of producing a well thought out approach for the country, including a robust Monitoring and Evaluation (M&E) framework,” he stated.
The crucial role of the IFC of the World Bank Group, which is providing technical as well as financial assistance through an extensive development process, was greatly appreciated by the Governor.
“This will enable us to draw on the World Bank Group’s experience in developing National Financial Inclusion Strategies across the world and assist us in distilling best practice for our own country-specific circumstances,” he added.
For the successful implementation of this process, Dr. Coomaraswamy reiterated the importance of high level political commitment. “Most of all, the active participation and commitment of all stakeholders who have been identified and whose representatives are included in the steering committee and the working committees is essential.”
In addition, the Governor said a consultative process would be followed involving all relevant stakeholders from the outset. “We need to work together with a clear understanding of our goals, strategies, responsibilities and most importantly the challenges that we would encounter in formulating the NIFS.”
IFC Sri Lanka and Maldives Country Manager Amena Arif stressed that financial inclusion was still listed as a key constraint for growth across many sectors in Sri Lanka and that they intend to build a customised financial inclusion strategy in partnership and commitment with the Central Bank of Sri Lanka (CBSL).
“As Sri Lanka looks to grow, a strong, inclusive financial sector is crucial. Financial inclusion is pretty much the need of the hour for sustainable, continued economic development in Sri Lanka,” she added.
Over the course of this journey towards a more inclusive, sustainable economy, Arif stressed they were proud to partner the CBSL.
“For NIFS to be effective, it cannot be a one size fits all solution that IFC brings. Instead it needs to be localised and customised to provide solutions that are specific to the Sri Lankan context, specific to our needs towards achieving financial inclusion.”
She said this process would involve extensive consultations with members of the public sector, private sector, civil society organisations and academia while calling on all stakeholders to voice their distinct ideas to play a pivotal role in defining the NIFS.
Despite a high bank account penetration rate, the number of individuals who reported no banking activities in the past year was 31%, Arif said, adding that the insurance sector was also significantly underdeveloped, which leaves enterprises and individuals vulnerable.
She emphasised that while only 17% of women had been successful in borrowing in the formal sector, over 80% of borrowers in the informal microfinance sector were women. Less than 15% of SMEs and 1% of micro enterprises used any form of insurance. There is also a minimal focus on women where insurance payouts received by women in Sri Lanka dropped by 34% during the period from 2006-2009.
“In Sri Lanka we find the question is less about the unbanked and more about the under-banked —whether people use their accounts and how they do so. This indicates that there is significant potential for better financial access and inclusion,” Arif emphasised.
Furthermore, she asserted that IFC would leverage the extensive experiences of the World Bank Group, gained from helping more than 20 countries to design or implement NIFS or action plans.
“In Sri Lanka, our work with the financial sector is quite extensive, helping mitigate risks, reach new customers and increase access to a range of financial products and services. We also focus on improving the regulatory side to make it more conducive for banks and institutions to expand their reach, narrow the financing gap, catalyse SME growth and boost financial inclusion,” she added.
