67% of Sri Lankan females have bank accounts compared to 25% in South Asia


People in Sri Lanka.

People travel along a road in Sri Lanka.

Most of us use, and talk a lot about, financial services daily. And often complain about their price, quality, and many other aspects.

But we seldom talk about how a country’s population use financial services. This is because until recently little was known about this aspect of financial services. Neither central bankers nor academics paid attention to developing systematic indicators of the use of financial services. This is changing because of the worldwide recognition that financial inclusion matters for growth, equity and poverty reduction. Better understanding of how people use financial services may provide useful insights to design and implement more effective measures to increase the level of financial inclusion.

There are a number of other reasons as well. Thus we can see systematic efforts being made by many countries and organisations to collect reliable data on the use of financial services. Sri Lanka’s 24 licensed commercial banks and nine licensed specialized banks have a branch network exceeding 3,158 outlets (excluding student savings units and other outlets). The regulated non-bank financial sector consists of 39 finance companies and 16 leasing companies with over 700 branches.

Eighteen insurance companies are also part of the financial system. There are other financial institutions, most of which are community-based, such as cooperative rural banks with over 2,000 branches, over 1,100 Samurdhi Banking Societies, more than 4,000 active thrift and credit cooperative societies. To this we need to add about 10 large and medium-size niche-market microfinance institutions with over 400 branches. Based on this vast number of supply outlets, one would be tempted to assume a very high level of financial inclusion in the country. Does demand-side data support this assumption? How do Sri Lankans use financial services? In 2011, Gallup, Inc. carried out a survey for the World Bank covering more than 150,000 adults (age 15 and above) in 148 economies representing about 97 per cent of the world’s population. With data from this survey, the World Bank has created what is known as the Global Findex Database. Sri Lanka was one of the countries covered in this global survey which used randomly selected, nationally representative samples.

The survey in Sri Lanka was conducted from 5 April to 22 April 2011 and included 1,000 face-to-face interviews in Sinhala or Tamil. The country-level data from the survey reveals how Sri Lankans save, borrow, make payments, and manage risk. Furthermore it helps us to identify barriers to financial inclusion as well as potential business opportunities for financial institutions. Because cross-country data from the survey are comparable, we can also see where Sri Lanka stands in relation to other countries in the region and beyond in terms of various dimensions of use of financial services. Sri Lanka’s financial Inclusion level is relatively very high We knew this in general but based largely on supply-side data from financial institutions including the central bank and a national sample survey on the outreach of financial services carried by the Institute of Policy Studies (IPS) in 2007 for the German Technical Cooperation. Now we have more recent data on the demand side.

What does the new data reveal?

When compared with the South Asian regional average indicators, most of the individual countries in the region, and many countries outside the region, account ownership among Sri Lankans is high: 69 per cent of the adults report having an account at a formal financial institution such as a bank, finance company, cooperative, post office or microfinance institution. This is much higher than the average of 33 per cent for South Asia and 41 per cent for the developing economies. What is more interesting is that, in contrast to most other developing countries and South Asia as a whole, there is little gender or rural-urban gap in account ownership. In South Asia on average only 25 per cent of female adults have an account at a formal financial institution but in Sri Lanka 67 per cent of females have accounts. Having an account is one thing and whether and how it is used is another people use accounts in a formal financial institution differently for a variety of purposes. The use of accounts for purposes other than deposits and withdrawal seems to be low among Sri Lankan adults. According to the survey, only 5 per cent of Sri Lankan adults with accounts use them for business purposes, 3 per cent to receive government payments, 5 per cent to receive remittances, 7 per cent to receive wages and 3 per cent to send remittances. The low usage level of accounts to receive government payments in particular suggests ample opportunities to increase financial inclusion through government-to-person (G2P) payments. However, this must be done efficiently to ensure that recipients’ transaction costs remain low.

This article originally appeared at the Sunday Times of Sri Lanka. To read it in its entirety, please click here.

Dr. Nimal A. Fernando is currently an Alliance for Financial Inclusion (AFI) Associate and the managing director of Inclusive Finance International (Pvt) Ltd. A Sri Lankan national, he is a former central banker with more than 35 years of development experience. He was the Practice Leader for Microfinance at the Asian Development Bank (ADB) until his retirement in 2008. Nimal was also the founder and chief editor of ADB’s quarterly microfinance newsletter, Finance for the Poor, and main author of ADB’s Microfinance Development Strategy.

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