Sri Lanka has launched its first national financial inclusion strategy, with objectives including digitising government services and supporting fintech development.
Developed by the island nation’s central bank, the strategy is structured around four priorities: increasing access to digital finance and payments; boosting access to finance for micro, small- and medium-sized enterprises (MSMEs); protecting financial consumers; and boosting financial literacy.
The Central Bank of Sri Lanka’s ‘National Financial Inclusion Strategy 2021-2024’ identifies what it describes as three ‘core enablers’: the creation of comprehensive and robust data collection mechanisms; improving and expanding the country’s financial infrastructure; and developing policy tools and an ‘enabling’ regulatory environment.
The strategy, which carries the tagline ‘Better Quality Inclusion for Better Lives’, acknowledges that achieving an ‘acceptable level’ of financial inclusion remains a challenge in Sri Lanka, which has a population of about 22 million. ‘Moreover,’ it notes, ‘gaps in financial inclusion force the most vulnerable to resort to the informal finance sector, exposing them to risks and making them more susceptible to poverty’.
The country has a GDP per capita of $3,852 (2019) according to the World Bank, which has said the economic effects of the Covid-19 pandemic will have ‘significant’ welfare implications in Sri Lanka. Informal workers, about 70 per cent of the workforce, are particularly vulnerable as they lack employment protection or paid leave. The apparel industry, which employs about half a million workers, has reportedly cut significant jobs, the World Bank has said.
Challenges to digitalisation
The financial inclusion strategy (available in English as a 36-page document) is informed by a nationwide survey undertaken in 2018-2019 that found that Sri Lanka has relatively high rates of bank account ownership. According to the survey, 88 per cent of respondents have ‘accounts at a financial institution’ and there is no significant gender or regional disparity in account ownership. But account usage, as well as uptake of other financial products and services, for example insurance, is ‘modest’.
Further challenges to the development of digital financial services identified by the survey include: a preference for in-person interaction with bank cashiers; lack of trust among citizens towards digital transactions; ‘low’ internet usage and smart-phone penetration in rural areas; low levels of inter-operability between mobile wallets and between banks and non-banks; distribution of government welfare benefits being largely cash- and coupon-based; the ‘high’ cost of purchasing point-of-sale (PoS) terminals; and a need for ‘more timely and consistent’ regulatory guidance for emerging technologies.
The strategy also acknowledges low levels of formalised bookkeeping and ‘financial literacy’ among MSMEs and refers to ‘poor’ co-ordination among government programmes supporting MSMEs.
Among the proposed measures are digitising government ‘schemes and services’; ‘streamlining’ know-your-customer (KYC) processes to ensure standardisation and introducing a tiered approach with proportionate barriers to entry dictated by respective risks; and supporting the development of a fintech ecosystem with an emphasis on financial inclusion.
The strategy also includes strengthening the role of the country’s National Payments Council (NPC) and development of a national payments strategy ‘encompassing the entire gamut of payment and settlement systems’.
IFC and Australian Aid support
Financial and technical assistance for the strategy’s development was provided by the International Finance Corporation (IFC) and Australia’s Department of Foreign Affairs and Trade (DFAT)’s Australian Aid programme. The IFC, part of the Washington DC-headquartered World Bank Group, is a global development institution that seeks to end extreme poverty by encouraging the private sector in emerging markets.
Working groups will be formed for each of the four focus areas, while there will be one working group for the ‘enablers’ that will cut across the focus areas.
“As Sri Lanka continues to move forward, it’s crucial to have a strong, inclusive and sustainable financial sector. Greater access to financial services means better living standards, better business opportunities and investments,” said IFC vice-president for Asia and Pacific, Alfonso Garcia Mora. “We know from the impacts of Covid-19 that digital finance became a safe, secure and timely option for many people. Yet, some people are still missing out. As the new strategy points out, 62 per cent of Sri Lankan women were aware of financial transactions through mobile phones, yet only 32 per cent were comfortable using the technology. We stand ready to help foster a more resilient and inclusive financial system for Sri Lanka.”
Sri Lanka’s prime minister, Mahinda Rajapaksa, tweeted that the programme ‘will improve accessibility, inclusiveness and usage of financial services across the island to better the standard of living and pave way for poverty alleviation’.
A launch event saw the symbolic presentation of the strategy to Rajapaksa by the central bank’s governor, Prof W D Lakshman. Australia’s high commissioner to Sri Lanka and Maldives, David Holly, and the IFC’s country head, Amena Arif, were among those present.
WATCH: The Central Bank of Sri Lanka hosted a panel discussion (1 hour 11 min) to discuss the new strategy =>