CB's strategic orientation towards financial inclusion - Is the CB top aware of what is financial inclusion?

 

According to the CB press release on 8 August, the CB has launched a dedicated web portal of its Regional Development Department (RDD) to signify its strategic orientation towards financial inclusion initiatives whereas the web portal has been developed with financial assistance of the International Finance Corporation(IFC)  press_20230808_cbsl_launches_the_web_portal_of_regional_development_department_e_0.pdf.

The purpose of this article is to show that the CB senior management has no idea of financial inclusion of the standard version or financial services and literacy required for Sri Lanka at this juncture for the recovery of the bankrupted government and economy.

Highlights of the press release

• IFC is a longstanding partner of the CB in promoting financial inclusion since 2018.

• This web portal is part of the overall National Financial Inclusion Strategy (NFIS) for Sri Lanka in which the IFC played a significant role to make financial services more accessible, efficient, and affordable for all households and businesses in the country.

• The CB under its new legislation is now vested with the responsibility of promoting financial inclusion. Therefore, the web portal is an important step towards promoting financial inclusiveness in the country.

• This web is expected to facilitate all stakeholders of the country through dissemination of information on the financial inclusion efforts of the CB.

• The web provides an interactive experience to its users with a user-friendly interface and equipped with financial literacy materials and tools such as publications, Training-of-Trainers (ToT) modules, quizzes and games to enhance financial knowledge, attitude, and behavior of users supporting to make informed and rational financial decisions.

• The web also expected to act as a shared platform for all stakeholders to access information and collaborate in their financial literacy initiatives. This will complement the upcoming Financial Literacy Roadmap for Sri Lanka to be implemented from 2024.

Few comments on the contents of the press release

• This press release starts by mentioning of financial inclusion role of the CB but ends by talking of its financial literacy work. Therefore, the CB has got mixed up between financial inclusion and financial literacy.

• Therefore, the CB thinks that its work for financial inclusion is a few micro and SME credit schemes operated by the RDD and ad-hock financial literacy work carried out by the RDD and the CB's 6 regional offices. The CB's literacy programmes stated in the web are mostly about unlawful pyramid investments and deposit-taking. The CB officials have no skills to teach the public on how to open and run SMEs.

• The web provides only some outdated financial literacy materials of bureaucratic nature prepared by the CB and IFC. None can understand how these materials promote financial inclusion in the country.

What is financial inclusion?

Financial inclusion generally means the spread of formal sector financial services across persons and households at affordable prices in order to improve their economic activities and living standards.

• According to the Wikipedia "Financial inclusion is defined as the availability and equality of opportunities to access financial services. It refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products."

• According to Investopedia "Financial inclusion refers to efforts to make financial products and services accessible and affordable to all individuals and businesses, regardless of their personal net worth or company size. Financial inclusion strives to remove the barriers that exclude people from participating in the financial sector and using these services to improve their lives. It is also called inclusive finance."

However, according to the CB's new web, financial inclusion is about the CB's ad-hoc micro and SME credit schemes and financial awareness programmes. Therefore, the new initiative with the IFC as stated is only some bureaucratic work of the CB which has no use to the general public to have the access to modern formal sector finance and enjoy an inclusive growth in the country.

Can the CB offer financial inclusion functions under the new Central Bank Act?

Among powers, functions and duties of the CB, the new Act includes "promote financial inclusion in Sri Lanka." However, neither a definition nor policy instruments are provided for in the Act. 

In fact, the CB is prevented from opening its branches and implementing refinance credit schemes on CB funds.

Further, powers to regulate bank interest rates and credit are not permitted in the new Act. However, the repealed Monetary Law Act contained immense powers to fulfill credit/monetary needs of the country and specific sectors where the CB used them extensively.

A central bank can promote financial inclusion only through the monetary policy and related regulatory powers. However, the monetary policy authorized in the new Act does not provide for financial inclusion related policy instruments. 

Therefore, the CB will have to close this inclusion web portal very soon as key activities presented therein such as refinance schemes and regional offices are unlawful under the new Act. 

Some concerning observations

• The press release states that the IFC which financed the development of this web has been a longstanding partner of the CB since 2018 in promoting financial inclusion in the country. However, there is no record of any such financial inclusion work. Especially, restructuring and recovery of Sri Lankan economy bankrupted by the debt and foreign currency crisis require financial inclusion strategies that enable the government to sustain its debt stock and businesses and households to resume their economic activities. However, neither the CB nor the IFC has launched any such strategies so far despite their financial inclusion rhetoric.

• It is difficult to understand why the IFC had to finance the development of this rudimentary web portal despite the CB's IT capacity and financial health with CB's net profit of Rs. 235 bn retained in the last year without transferring to the cash-strapped government whereas the CB printed Rs. 25 bn for just its operational expenses. The development of this type of basic web will not cost more than Rs. 200,000 to a local IT person if the CB's IT Department is not technically competent.

• Nobody is aware of NFIS referred in the press release and articulated in the web. It is a puzzle how such national strategies connected with foreign parties prevail unknown to the general public.

• I do not understand how the CB teaches financial literacy on risky pyramids and investments to the general public while the CB itself looses billions of own funds by investing in dealers regulated by itself and prints money to cover such daylight losses including payment of exorbitant rates of returns around 29% to own employee retirement funds where the public provident funds receive 9%.

• According to the CB Annual Report 2022, inclusive MSME credit schemes referred to in the web do not bear any significance. They all are 12 govt funded schemes and 7 CB funded schemes which disbursed only Rs. 16 bn catering to about 62,000 beneficiaries in 2022. Of those, nearly 93% was comprised of the two old, highly bureaucratic schemes, i.e., Comprehensive Rural Credit Scheme and Saubagya Loan Scheme. It is well known how the CB top management opposed refinance of Rs. 200 bn during Corona pandemic while all central banks printed money to protect supply chain finance. Therefore, I do not understand the role of such trivial credit schemes in the financial inclusion of the present bankrupted and debt-trapped economy.

• I do not understand how will the CB's new monetary policy of daily and short-term liquidity management support provided to banks, finance companies, leasing companies and private equity and bond investors based on policy interest rates will promote financial inclusion for the recovery of the bankrupted economy.

• Therefore, it is the duty of the people's governments to ensure that the country's central bank operates to provide the public with the access to contemporary monetary needs in line with required improvements in living standards. This is the meaning of financial inclusion. Otherwise, the country's independent central bank will be another bank of a few rich businessmen who run the social market economy of Sri Lanka lingering in the bankruptcy. The general public will soon question the purpose of the independent central bank with exclusive monetary policy carried out to provide the liquidity only to profit-frenzied money dealers in the country.

Overall, present CB management resorting to such media shows while defaulting on its core functions and pubic duties should be a matter of shame to those who are interested in central bank functions in the public interest. 

(This article is released in the interest of participating in the professional dialogue to find out solutions to present economic crisis confronted by the general public consequent to the global Corona pandemic, subsequent economic disruptions and shocks both local and global and policy failures.)

P Samarasiri

Former Deputy Governor, Central Bank of Sri Lanka

(Former Director of Bank Supervision, Assistant Governor, Secretary to the Monetary Board and Compliance Officer of the Central Bank, Former Chairman of the Sri Lanka Accounting and Auditing Standards Board and Credit Information Bureau, Former Chairman and Vice Chairman of the Institute of Bankers of Sri Lanka, Former Member of the Securities and Exchange Commission and Insurance Regulatory Commission and the Author of 12 Economics and Banking Books and a large number of articles published. 

The author holds BA Hons in Economics from University of Colombo, MA in Economics from University of Kansas, USA, and international training exposures in economic management and financial system regulation)