Digital finance to be main focus of National Financial Inclusion Strategy

• To come into effect mid next year 
• To be developed with IFC support
• National Payment Platform to be  part of it

The Central Bank with the assistance of International Finance Corporation (IFC), a member of the World Bank Group yesterday held the inaugural session to develop National Financial Inclusion Strategy (NFIS) in a fresh push to increase financial inclusion.

The Central Bank said NFIS is scheduled to come into effect in the mid part of next year and main focus will be on digital finance. Central Bank Assistant Governor Asoka Handagama said the long-debated National Payment Platform (NPP) will also be a part of NFIS.

According to Central Bank Governor Dr. Indrajit Coomaraswamy, Sri Lanka has already made considerable progress in financial inclusion as there is high level of physical access to financial institutions in the country. Sri Lanka’s banks and non-bank financial institutions have wider networks, even reaching the far corners of the country. As a result, bank branch density currently stands at 18.6 branches for every 100, 000 adults.

Further, about 83 percent of the adult population in the country has accounts with formal financial institutions and more importantly the same percentage of women also have accounts at formal financial institutions, unlike in many other South Asian countries.

However Dr.Coomaraswamy pointed out that despite the relatively better financial inclusion compared to its regional peers, Sri Lanka faces several bottlenecks in achieving greater financial inclusion.

“Financial inclusion does not entail only providing affordable access to financial products and services but also the need to increase the financial literacy and financial awareness to enable users to utilize financial services effectively and improving payments and settlement systems,” he said.

“Customers of financial institutions should be able to access financial products without being harassed or getting into a debt trap,” he added. 

Sri Lanka’s efforts in raising financial inclusion dates back to early 20th century and were epitomized by the cooperative movement, where loans were provided to farming communities through cooperative societies.

Thereafter various other programmes to increase financial inclusion were put in place, , albeit isolated projects, by the governments that came into power which included the setting up of regional banks, Janasaviya, Samurdi and Divi Neguma.

The Central Bank has also taken various measures to increase financial inclusion in the country. It has been promoting physical access to banking services by encouraging the opening up of branches in rural areas.

On behalf of the government it has also mandated targeted lending to micro finance sector, SMEs, to agriculture, youth and women. Further the Central Bank has been facilitating and implementing refinance, interest subsidy, and credit guarantee schemes targeting the micro, small & medium enterprise (MSME) sector.
“What is required is a combined effort from state institutions, financial service providers and other professional bodies, supported by a comprehensive policy framework. That is what we are trying to achieve here,” Dr.Coomaraswamy said.

IFC County Manager for Sri Lanka and the Maldives Amena Arif who also spoke at the inaugural event acknowledged that Sri Lanka fare better in financial inclusion compared to the other countries in the South Asian region.

However she pointed out that as Sri Lanka looks to grow the island nation needs financial inclusion strategy that is both accessible and responsive to the need of the population

“A strong and inclusive financial sector is crucial simply because without such no sustainable economic development is not possible,” Arif said. 

“When we talk about Sri Lanka it’s not a question about unbanked but under-banked. Despite higher number of accounts, there hasn’t been much activity, which show just having a bank account is simply not enough,” she added.

Arif pointed out that only 17 percent of Sri Lankan women have been successful in borrowing from financial institutions and yet in the informal market about 80 percent of the borrowers have been women.

“That shows the need for a comprehensive financial inclusion strategy,” she said.

It is estimated that there are about 2.5 billion adults in the world without access to formal financial sector and out of that 625 million live in South Asia. 

Meanwhile, Arif voiced concerns about the country’s under-developed insurance sector and noted that less 15 percent of SMEs and less than 1 percent of MSMEs use any form of insurance, which she said leaves enterprises and individuals at greater risk.

Both the Central Bank and the IFC stressed that the process to develop a NFIS will involve extensive consultations with public sector, private sector, civil society organizations and academia. 

“This is not one size that fits all strategy. This has to be developed locally,” Arif said.