Non-bank financial institutions urge authorities to recognise their role facilitating growth, financial inclusiveness

• Say utility of sector not properly recognised
• Request policymakers not to unnecessarily interfere with functioning of sector
• Call to relax statutory and liquidity reserve ratios
• Urge govt. to include sector in recently announced credit guarantee scheme

By Nishel Fernando
Sri Lanka’s non-bank financial institutions (NBIFs) yesterday urged the policymakers and regulators to recognise their role facilitating economic growth and financial inclusiveness, particularly with regard to the country’s SME sector.

“Many policy initiatives in the past have broadly failed at recognising the broad utility of NBFIs, specifically due to the failure in considering underlying dynamics of the sector and lack of focus on monetary tools applicable to the sector,” Finance House Association of Sri Lanka (FHA) Immediate Past Chairman Krishan Thilakaratne told reporters in Colombo, yesterday.
The FHA is the apex body of 39 registered finance companies with the Central Bank (CB).

He pointed out that the NBFIs play a pivotal role in financial inclusion at the bottom of the pyramid, dealing with riskier borrowers (SMEs) as the banks are reluctant to cater to 
that segment.

Over the past several years, he noted that over 55 percent of the CRIB reports were obtained by the NBIFs, which is a clear indication of the lending portfolio of the NBIFs.
Furthermore, the NBIFs have also granted over 500,000 moratoria on leasing and debt repayments, higher than the banking sector.

Therefore, he stressed that the policymakers should bear in mind not to interfere with the functioning of the sector, such as disturbing the repayment culture of the bottom of the pyramid borrowers.

Further, the FHA urged the CB to relax certain regulatory requirements, including statutory reserve ratio and liquidity reserve ratio imposed on the sector to provide liquidity to the NBIFs in the short run.

Thilakaratne also urged the authorities to extend credit guarantee schemes to the NBFI sector, which have already been extended to the banking sector under the Saubhagya loan scheme, as the NBIFs are better equipped to disburse credit to the bottom half of SMEs, who are most vulnerable to macroeconomic shocks. 

Further, the apex body suggested the government to grant the PCI status for the NBIFs, allowing them to access low-cost funding channels and to support them by providing with funding channels to meet specific economic objectives.

According to FHA Chairman Roshan Abeygunawardena, the asset base of the NBIF sector has grown by over 20 percent annually from 2013, up to now to Rs.1.3 trillion while its loan disbursements have recorded over 21 percent growth during the same period to Rs.1.06 trillion. 

Further, he pointed out that the top NBIFs have equal or higher credit ratings compared to some commercial banks in the country.

The NBFIs have also reportedly attracted more funds from international development financing agencies, compared to the banking sector over the years.

Moving forward, the FHA urged the government to implement practical reforms in order to streamline the finance company industry while noting that the fraudulent activities of non-regulated finance companies have led to misconceptions about regulated finance companies.

The FHA suggested enacting the proposed Money Lending and Micro Financing Act to prevent informal lending activities and to create a special investigation unit to investigate and take actions against unauthorised financial institutions operating in the country.