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Financial Access is Not Financial Inclusion: Current Status and issues of Financial Inclusion in Sri Lanka Ganga Tilakaratna
Financial Access is Not Financial Inclusion:
Current Status and issues of Financial Inclusion in Sri Lanka
Ganga Tilakaratna
Outline
• Financial Institutions: Diversity and Growth
• Financial Inclusion: Where Does Sri Lanka Stand?
• Access to Finance : Insights from a Household Survey
•Issues and Challenges
Financial Institutions in Sri Lanka
• Licensed commercial banks
• Licensed specialized banks
• Licenced finance companies
• Specialised leasing companies
Formal FIs
• Co-operatives
• NGO, CBOs & companies providing MF
• Samurdhi / Divineguma banks
Semi-Formal FIs
Source: Author’s compilation
Banking Sector -2015
Source: CBSL Annual Report 2015
Category Number
Licensed Banks 32
(i) Licensed Commercial Banks 25
(ii) Licensed Specialized Banks 7
Bank Branches and Other Outlets 6,583
(i) Bank Branches 3,538
(ii) Student Saving Units 3,045
ATMs 3,558
Electronic Fund Transfer Facilities at Point of Sale
Machines (EFTPOS) 33,355
Bank Density : Bank Branches Per 100,000 Persons 17
Density of Banks by Province – 2009 and 2016
Density of banks has increased from less than 10 branches per 100,000 persons in 2009 to 17 by 2015
0
5
10
15
20
25D
en
sity
of
ba
nk
bra
nch
es
pe
r 1
00
,00
0
2009
2016 q2
Source: CBSL (2016), Sri Lanka Macroeconomic Developments in Charts
Leasing and Finance Sector
Along with the growth of the banking sector, there has been an expansion in the finance and leasing sector…..
Source: CBSL Annual Reports various issues
0
200
400
600
800
1000
1200
1400
2010 2011 20122013
20142015
600 704
972 1060 1132
1216
Nu
mb
er
of
lea
sin
g a
nd
fin
an
ce
com
pa
ny
bra
nch
es
0
50
100
150
200
250
300
350
400
Nu
mb
er
of
bra
nch
es
of
LF
Cs
an
d
SL
Cs
Province
2010
2015
Growth of Leasing and Finance Company Branches by Province
Source: CBSL Annual Report 2015; CBSL Financial systems Stability Review 2013
Semi-Formal Financial Institutions
Co-operatives
Thrift and Credit Co-
operative Societies (TCCSs)
Established in 1906
Pioneers of providing MF
Co-operative Rural Banks (CRBs) A network of over 2000
banks
NGOs, CBOs & Companies/MFIs
A large number of
NGOs, CBOs and companies providing MF
Only a handful of them
operate at the national level
Samurdhi / Divineguma Banks
Established in mid 1990s as a part of the government’s main poverty alleviation program
1074 Samurdhi banks
3 million members and nearly 4 million savers
Linked to the Samurdhi cash transfer program (with ~1.5 million beneficiaries from low-income groups)
Geographical Coverage of Financial Institutions
Over 14,000 ‘access points’ – defined as a bank or a co-operative or a society where clients can save and take loans from (CGAP, 2006)
One access point for each 1,300 people –a high level access to FIs!
The number of access points and the coverage is expected to have improved further in recent years.
CGAP(2006)
FINANCIAL INCLUSION
Where Does Sri Lanka Stand within The Asian Region?
10.0
13.0
31.0
31.3
33.8
36.1
53.1
78.1
78.9
80.7
82.7
96.1
96.4
96.6
0.0 20.0 40.0 60.0 80.0 100.0
Afghanistan
Pakistan
Bangladesh
Philippines
Nepal
Indonesia
India
Thailand
China
Malaysia
Sri Lanka
Hong Kong
Singapore
Japan
% of adults (15+ years)
Source: World Bank (2015), The Little Data Book on Financial Inclusion -15
Share of Adults (15 Years +) with an Account at a Financial Institution
Share of Adult Women with an Account at a Financial Institution
Source: World Bank (2015), The Little Data Book on Financial Inclusion -15
3.8
4.8
26.5
31.3
37.5
37.9
43.1
75.4
76.4
78.1
83.1
96.1
96.3
97.0
0 10 20 30 40 50 60 70 80 90 100
Afghanistan
Pakistan
Bangladesh
Nepal
Indonesia
Philippines
India
Thailand
China
Malaysia
Sri Lanka
Singapore
Hong Kong
Japan
% of women (15+ years)
Share of Adults Living in Rural Areas with an Account at a Financial Institution
9.2
12.4
25.6
27.5
28.7
32.1
50.1
73.7
74.3
78.2
83.4
89.9
96.4
0 20 40 60 80 100
Afghanistan
Pakistan
Bangladesh
Philippines
Indonesia
Nepal
India
Malaysia
China
Thailand
Sri Lanka
Hong Kong
Japan
% of adults living in rural areas
Source: World Bank (2015), The Little Data Book on Financial Inclusion -15
Share of Adults belong to Poorest 40% with an Account at a Financial Institution
6.6
11.2
17.8
22.2
23.1
23.7
43.9
72
72
75.6
79.8
94.8
95.4
96.2
0 20 40 60 80 100
Afghanistan
Pakistan
Philippines
Indonesia
Bangladesh
Nepal
India
China
Thailand
Malaysia
Sri Lanka
Hong Kong
Japan
Singapore
Adults belonging to the poorest 40%
Source: World Bank (2015), The Little Data Book on Financial Inclusion -15
1.5
3.6
6.4
7.9
8.2
9.6
9.9
11.8
11.9
13.1
14.2
15.4
17.9
19.5
0 5 10 15 20 25
Pakistan
Afghanistan
India
Japan
Hong Kong
China
Bangladesh
Philippines
Nepal
Indonesia
Singapore
Thailand
Sri Lanka
Malaysia
% of adults borrowed from FIs past year
Share of Adults who have borrowed from a FI in the Past Year
Source: World Bank (2015), The Little Data Book on Financial Inclusion -15
Financial Access in Sri Lanka: A Comparative Analysis
% with an account Sri Lanka South Asia
East Asia and Pacific World
All adults 82.7 46.4 69.0 61.5
Adult women 83.1 37.4 67.0 58.1
Adults belonging to the poorest 40% 79.8 38.1 60.9 54.0
Young adults (aged 15-24) 85.2 36.7 60.7 46.3
Adults living in rural areas 83.4 43.5 64.5 56.7
Source: World Bank (2015), The Little Data Book on Financial Inclusion -15
ACCESS TO FINANCE :
INSIGHTS FROM A HOUSEHOLD
SURVEY
Savings : Number of FIs accessed
0.0
20.0
40.0
60.0
80.0
100.0
2006/07 2009/10
12.7 3.0
5+
4
3
2
1
0
97% of HHs had savings accounts; 77% of HHs had savings with multiple FIs
Source: Tilakaratna (2012) Dimensions and Dynamics of Clientship in the Microfinance Sector; Panel household survey 2006/07 & 2009/10
Loans : Number of FIs accessed
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
2006/07 2009/10
44.2
21.8
42.0
29.1
5+
4
3
2
1
0
Over 75% have borrowed from FIs with 49% borrowing from multiple FIs
14% 49%
Source: Tilakaratna (2012); Panel household survey 2006/07 and 2009/10
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006/07 2009/10
13% 3%
22%
12%
14%
8%
9%
10%
32%
54%
10% 13%
% o
f H
ou
seh
old
s Multiple FFIs only
Multiple FFI(s) +MFI(s)
Multiple MFIs only
single FFI
Single MFI
None
Multiple Savers
Type of FIs accessed by Households for Savings
A considerable % of HHs have saved with a mix of semi-formal FIs (eg. MFIs) and formal FIs. This has increased notably during the two periods
Source: Tilakaratna (2012); Panel household survey 2006/07 and 2009/10
0%
20%
40%
60%
80%
100%
2006/072009/10
44%
22%
29%
15%
13%
14%
5%
10%
7%
32%
2%
7%
% o
f H
ou
seh
old
s
Multiple FFIs only
Multiple FFI(s) +MFI(s)
Multiple MFIs only
single FFI
Single MFI
None
Multiple borrowers
Type of FIs accessed by Households for Loans
The findings indicate a considerable level of overlap between clients of formal FIs and semi-formal FIs
Source: Tilakaratna (2012); Panel household survey 2006/07 and 2009/10
- Access a range of products (pawning, agri. loans)
- Build up a lump-sum
- Frequent access to credit
-- Cross- financing
- Growth of FIs and financial products
- Marketing strategies
Demand-side Supply-side
MUL T I PL E BORROWI NG
Why Multiple Borrowing and a Mix of FIs?
Source: Tilakaratna (2012); Tilakaratna (2013) Multiple Borrowing in the Microfinance Sector in Sri Lanka
Why Multiple Saving and Why a Mix of FIs?
To have access to loans from multiple institutions.
Savings accounts in formal FIs to access remittance facilities, current account services
Transfers and payments
To get ‘additional’ benefits attached to opening an account
Not all eggs in one basket!
Multiple saving is caused by both households’ choice
and the types of product offered by FIs.
Source: Tilakaratna (2012)
ISSUES AND CHALLENGES
Quality of Products
Source: Author’s compilation
Quality of Products – Loans
Source: Author’s compilation
Country
Insurance Penetration (%of GDP) -2015
Insurance Density (USD) -2015
Total Business Long term General
Total Business
Long term General
Japan 10.82 8.27 2.55 3553.8 2717 836.8 Singapore 7.25 5.55 1.69 3825.1 2931.5 893.7 India 3.44 2.72 0.72 54.7 43.2 11.5 Malaysia 5.05 3.37 1.68 472.3 315.6 156.7 Thailand 5.49 3.70 1.79 318.9 215.1 103.9 PR China 3.57 1.95 1.63 280.7 153.1 127.6 Philippines 1.90 1.37 0.53 55.0 39.8 15.3 Sri Lanka 1.15 0.49 0.66 43.1 18.5 24.5
Indonesia 1.73 1.28 0.45 57.9 42.7 15.2 Pakistan 0.82 0.54 0.27 11.5 7.7 3.9 Europe 6.89 4.16 2.73 1634.4 987.2 647.2 Asia 5.34 3.59 1.74 311.7 209.8 102 Africa 2.90 1.97 0.92 54.7 37.3 17.4 World 6.23 3.47 2.77 621.2 345.7 275.6
Usage of Insurance services remains low….
Source: Swiss Re(2016)_World Insurance in 2015 Note: Insurance penetration- total insurance premium as % of GDP; Insurance density- ratio of insurance premium to the total population (premium per capita)
Reasons for Low Usage of Insurance
Lack of trust /confidence
Lack of awareness of benefits
Affordability
Government interventions
Availability of informal mechanisms
Regulatory environment
Source: Based on preliminary findings of a study on ‘Co-operative and Mutual Micro-insurance in Sri Lanka’ (on-going research project)
Remittances
30-40% of remittances are transferred through informal channels
Main reasons :
Formal channels : high costs , delays, paperwork involved, distance to banks from worksites, lack of awareness
Informal channels : low cost, ‘door-to door’ services, little or no paper work
Technology based solutions to
improve efficiency of formal channels.
Leading banks have moved towards providing electronic money transfer mechanisms ( e- remittance)
Money Transfer Businesses (e.g. MoneyGram, Western Union)
Foreign remittances directly to mobile phone (e.g. eZ cash)
Indicator
Sri Lanka
South Asia
EAP World Lower Middle Income
Has a debit card -2015 24.9 18.0 42.9 40.1 21.2
Has a debit card -2011 10.0 7.2 34.7 30.5 10.1
ATM is the main mode of withdrawal (% with an account) -2015 23.3 31.1 53.3 n/a 42.4
ATM is the main mode of withdrawal -2011 15.4 16.9 37.0 48.3 28.1
Used a debit card to make a payment past year 10.4 8.5 14.8 23.2 9.6
Used a credit card to make a payment past year 2.8 2.6 10.8 15.1 2.8
Used internet to pay bills or make purchases 1.6 1.2 15.6 16.6 2.6
Mobile account (% aged 15+) 0.1 2.6 0.4 2.0 2.5
Source: World Bank (2015), The Little Data Book on Financial Inclusion -15
Use of Digital Financial Services
Recent Technological Innovations
MNO – led mobile money services
eZ cash
M – cash
Mobile banking
deposit, withdraw, transfer and payment services
Remittances: e –remittances; via mobile accounts
Insurance : by MNOs (Dialog-BIMA)
Electronic payment systems: Payment cards (Debit and credit cards) ATMs , EFTPOS , Mobile POS ( e.g. HNB Mo-Mo)
Conclusions and Way Forward
A wide network FIs and high level of financial access
Yet, many issues related to quality of products/services
Technology is key to improving the quality of financial inclusion
Some challenges :
Awareness creation
Building confidence on technology-based products
Creating a conducive environment (e.g. regulation)
Technology is not a panacea for all issues related to financial inclusion!
Other measures needed to achieve financial inclusion.
Financial literacy/ education
Ensuring sustainability of financial institutions
Client protection
