E-BANKING FOR THE POOR: A CASE STUDY OF SRI LANKA

Sirimevan S. ColombageProfessor of Social Studies

The Open University of Sri Lanka

Research project funded by the Institute for Money, Technology and Financial Inclusion, University of

California, Irvine

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Country Fact Sheet

• Area 65,610 sq. km.• Population 20 mn.• Population growth 1%• Per capita GNP $ 2,000 (Lower middle-

income country)• HDI 0.742 (Medium Human

Development) : (South Asia 0.56): Ranked 104th among 179 countries

• Life expectancy: males 72 years, females 77 years

• Literacy rate 91%• Computer literacy rate 40%• Banking density: 10 branches per

100,000 persons• 8 ATMs per 100,000 persons• 4,600 credit cards per 100,000 persons• 17 fixed phones per 100 persons• 60 mobile phones per 100 persons• 12 Internet & email users per 1,000

persons

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Major objectives of the study

To ascertain: • how the poorest people earn, spend, store and

save money; • how mobile banking (m-banking) influences

these practices;• perceptions of the poorest on the use of money

and modern technology-based banking;• potential for expansion of communication

technology for the benefit of the poorest; and• policy actions needed to enhance financial

inclusion.

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The work completed so far ...• Literature survey• Qualitative survey: focus group discussions, in-depth

interviews• Discussions with banking & microfinance institutions• Quantitative survey; 550 out of 1,000 households

surveyed & data processed (20 districts covered)Composition of the Sample

Sector Number of Census Blocks

Number of Households

Rural 78 780

Urban 16 160

Estate 6 60

Total 100 1,000

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Composition of retail payments systems

Composition of Values of Retail Value Payments Systems (%)Payment system 2002 2005 2008Main Cheque Clearing System 62.5 94.3 89.9Rupee Draft Clearing System ... 0.2 0.0Sri Lanka Interbank Payment System 34.2 2.4 4.5Credit Cards 0.5 1.2 1.4Debit Cards 0.6 0.0 0.1Internet Banking 1.5 1.4 3.8Phone Banking 0.8 0.1 0.1Postal Instruments ... 0.3 0.2Total 100.0 100.0 100.0Source: Central Bank of Sri Lanka

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E-banking recently offered by commercial banks

• Online internet (virtual) banking: – balance inquiry, check status, stop payments, bill

payments, inward remittances and fund transfers. – Internet banking customers can also access from

anywhere in the world on mobile phones.

• Most of the internet banking services can now be accessed through mobile phones.

• The use of mobile telephones is rapidly growing in Sri Lanka.

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Availability of Communication Equipment(As % of households) n=552

0 20 40 60 80 100

Electricity

Radio

Television

Land phone

Mobile phone

Fax machine

Desktop computer

Laptop computer

Computer printer

CD drive

Scanner

Email

Internet

Source: Household Survey on E-Money conducted by the author, 2009

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0

10

20

30

40

50

60

70

2001 2003 2005 2007 2009

Sri Lanka: Telephone Density(Telephones per 100 persons)

Mobile phones Fixed phones

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Telephone Density, 2007(Per 100 persons)

0

20

40

60

80

100

120

140

Bangl

ades

h

China

India

Mala

ysia

Pakist

an

Sri La

nka

Thaila

nd

Fixed phones

Mobile phones

Internet users

Source: ADB Key Indicators, 2009

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Regional disparities in t’phone ownership

Source: Department of Census & Statistics

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Awareness & Use of Electronic Banking (% of adult household members) n= 1,496

0 20 40 60 80

Internet banking

ATM machines

Phone banking

SMS banking

Cyber banking

e-remittances

Mobile cash

Using

Have knowledge

Source: Household Survey on E-Money conducted by the author, 2009

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Purposes of Using Mobil Phones(% of Adult Mobile Oweners)

0 10 20 30 40 50 60

Communicate

Send SMS

Business

Obtain information

Employment

Banking

Purchase goods

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Use of Banking Facilities(As % of households)

0 10 20 30 40 50 60 70 80 90 100

Have a commercialbank account

Have an ATM card

Have a credit card

Have a mobile phone

Use mobile phonebanking

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The most important reason for not using M-Banking(% of households who do not use M-Banking)

0 10 20 30 40 50

High costs

Less security

Difficult to use

No understanding

Never heard

Not necessary

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Savings among the poor

• Low savings due to low incomes• Debt trap• Keep minimum deposits in banks to obtain a

loan, but not to build up the asset base• Diminishing savings culture partly due to

negative real interest rates• No use of e-banking due to low financial

operations• Lack of knowledge about e-banking common• Security concerns also limit e-banking

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Pearson Correlation Coefficients (n = 1,672)Variables Age Education Occupation IncomeKnow about internet banking -0.050* 0.196** -0.007 0.136**Using internet banking -0.005 0.036 0.045 0.109**Know about ATM machines -0.043 0.256** -0.340 0.090**Using ATM machines -0.047 0.251** 0.004 0.233**Know about phone banking -0.040 0.212** -0.067** 0.130**Using phone banking -0.015 0.055** 0.010 0.073**Know about SMS banking -0.039 0.187** -0.044 0.103**Using SMS banking -0.012 0.027 -0.014 0.009Know about cyber banking -0.015 0.127** -0.035 0.068**Using cyber banking -0.004 0.017 -0.026 0.010Know about e-remittances -0.035 0.079** -0.031 0.210Using e-remittances -0.012 0.037 -0.002 0.076**Know about mobile cash -0.045 0.197** -0.071** 0.039Using mobile cash -0.014 0.020 -0/027 0.008** indicates Correlation is significant at the 0.01 level (2-tailed).

* indicates Correlation is significant at the 0.05 level (2-tailed).

Source: Household Survey on E-Money conducted by the author

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Two segments which have vast potential to apply e-banking, but untapped ...

• Microfinance industry– Hundreds of MFIs based on community groups– Outreach– 44% of households surveyed are members of MFIs– E-banking not applied

• Inward remittance market– 1.6 mn. Sri Lankan migrant workers, mainly in Middle East– Annual remittances over $ 2.5 bn.– Mainly remitted through banks, but informal market is around

40%– E-remittances introduced by banks, picking up

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Conclusion

• Use of e-money & m-banking is low at present• Vast potential to develop e-banking

– Rapidly growing m-phony infrastructure– Cheaper usage cost of m-phones– High literacy rates– Microfinance reaching the poor– Remittance market

• Action needed– Awareness programs– Application of e-banking in major MFIs

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Research procedures to be conducted ...

• A few more focus group discussions & case studies

• Collected quantitative data are being tabulated & analyzed

• Survey is in progress

• Preliminary version of final report by January 2010

• Submission of final report by April 2010