Financial Inclusion, Regulation, and Education in Sri Lanka

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteThe Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.Working papers are subject to formal revision and correction before they are finalized and considered published.Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, JapanTel:+81-3-3593-5500 Fax:+81-3-3593-5571 URL:www.adbi.org E-mail: info@adbi.org AbstractSri Lanka has achieved a high level of financial inclusion compared to other South Asian countries. Its financial sector comprises a wide range of financial institutions providing financial services such as loans, savings, pawning, leasing and finance, and remittance and money transfer facilities. There is also evidence that a larger share of households in Sri Lanka accesses multiple financial institutions for their credit and savings needs. However, the use of insurance services, ATM facilities, e-payments, and mobile banking, is relatively low. Financial education is ad hoc and lags behind financial innovation and new products. The information technology (IT) literacy rate is only 35% in Sri Lanka, and with the growing IT-finance nexus, financial awareness and education have become all the more important. Strengthening the regulatory framework governing the microfinance sector and client protection is also crucial for improving financial inclusion in Sri Lanka. Much scope remains to improve financial inclusion, particularly related to cost and quality of financial services provided, and the sustainability of financial institutions.

Overview of Financial Inclusion, Regulation, and Education

“…Inclusive financial institutions in Sri Lanka include semiformal institutions (e.g., community-based organizations, cooperatives, and NGO MFIs), state programs (e.g., Samurdhi), and informal sources of finance (e.g., rotating savings and credit associations). Also, the post office was upgraded to provide banking and financial services, and banks employ mobile banking units to reach rural areas (Kelegama and Tilakaratna 2014).…”

“…On the other hand, use of mobile phones to pay bills in India is still limited at only about 2% of the population, and at a much lower rate among the rural poor (Barua, Kathuria, Malik 2016). Similarly, although in Sri Lanka where bank representatives can visit rural homes and use point-of-sale electronic devices to connect to mobile phone networks to take deposits and to provide instant electronic confirmations, the use of telephone banking there is still miniscule (Kelegama and Tilakaratna 2014).…”

“…However, there are issues with regard to identification and monitoring of money laundering and possible terrorism-related transactions. In Sri Lanka, commercial banks have introduced e-remittance services to capture large-scale inward remittance flows, although it is difficult to gauge their penetration of this market (Kelegama and Tilakaratna 2014).…”

“…Llanto (2015) also cited the slow implementation of a credit information system in the Philippines. Similarly, in Sri Lanka, membership in the Credit Information Bureau of Sri Lanka is mandatory only for formal financial institutions, such as commercial banks, licensed specialized banks, leasing companies, and finance companies, while most MFIs are not integrated (Kelegama and Tilakaratna 2014).…”

“…In the Philippines, banks are required to allocate at least 8% of their loan portfolio for micro and small enterprises, and at least 2% for medium-sized enterprises (Llanto 2015). In Sri Lanka, the banking sector is required to allocate 10% of credit to agriculture, and the central bank required banks to open two branches in rural areas for every branch opened in a metropolitan area (Kelegama and Tilakaratna 2014). However, without adequate incentives, banks will not achieve such targets, and still have a tendency to choose customers within target groups and to leave the poorer segments unserved.…”