Enhancing access and economic resilience through banking, financial services
Thursday, 14 November 2013 00:43
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By Shabiya Ali Ahlam
Over the past five years, it has been observed that profits have continued to shift from developed countries to emerging markets. In this period, the world economy also witnessed a dramatic decline in cross border lending. Much of that reduction is a consequence of the Euro zone crisis, according to Standard Chartered Bank, UK Vice Chairman Sir Thomas Harris.
While most of the emerging markets were immune to what he called the “G20 supernatural agenda”, Harris noted that survey after survey has shown that in the West, banks have fallen in the eyes of the public in terms of trust. And due to this, banks in both the developed and emerging markets are constantly under pressure from their populations.
“I believe that the international banking model helps mitigate rather than transmit financial shocks. We at Standard Chartered strongly believe that global banks can help facilitate international trade investment flows while supporting global supply chains by helping open new trade and investment corridors,” he expressed.
Impediments faced by financial sector
According to Central Bank of Sri Lanka Governor Ajith Nivard Cabraal, one of the biggest challenges faced by the global banking industry lies in developing systems to enable “banking to run banks”. “There are people who want to lend and there are people who want to borrow, but it is not happening at the level it is supposed to. This has been observed to be a problem and something has to be done about it,” he said.
Highlighting the impediments faced by the banking and financial services sector, Cabraal noted that it is not a question of money, or a matter of banks not wanting to lend or borrowers not wanting funds – the impediments remain due to the existence of weak projects, unreliable borrowers, weak capacities and unsound collateral.
From the lender’s point of view, banks and other financial institutions have yet to access certain geographical areas. As a result, money cannot be transmitted, and in addition to this, lenders might not have the capacity to recover loans and may be unable to operate in an enabling environment. Similarly, a borrower may not have access to financial services or loans may be costly due to higher interest rates.
Recommending solutions to overcome the situation, Cabraal stated that it is necessary to improve the capability of borrowers, heighten lender capacity, establish a regulatory framework and facilitate an enabling environment.
Sri Lankan strategies
Sharing a few strategies Sri Lanka is following to address such a situation, Cabraal said: “Sri Lanka found it useful to have its poverty level lowered. In the Mahinda Chinthana policy framework, it has been articulated that the nation will be developed in two aspects. One is through the big projects which have disseminated economic benefits to the entire population, and the other is by ensuring that all 14,400 villages have a project that enables development within their midst.”
Marginalisation
Examining the challenges faced by the financial sector in a broader perspective, Equity Bank – Kenya Group Managing Director Dr. James Mwangi pointed out to the audience that more than 2.5 billion people around the world do not have bank accounts and this is shows that certain populations have limited or no access to financial services.
“When you place this problem alongside the issues of the economic development, it is a big challenge. When resources are not allocated to certain groups of people, they are denied of the support to realise their dreams and that too at a time when the world continues to develop. This means that people continue to be marginalised and benefits not shared equally across populations,” he observed.
The other challenge is the practitioners’ ways of getting things done, a problem that prevails in business models, he said. “The financial sector and the banking industry in general have not been innovative. It is one industry that has not changed much. For example, a current account anywhere around the world shares the same features. Although I don’t want to blame the regulators, it must be said that the highly regulated nature of the industry limits innovation,” opined Mwangi.
Wonderful experience in banking
Insurance Ombudsman – Sri Lanka Dr. Wickrama Weerasooriya shared the view that the problem in the banking sector lies in the distance between the people. “We are not talking about borrowers and lenders, and we are not talking about bankers and creditors. What we are talking about is banking as a service to the people, as banking is getting money from those who have to those who haven’t,” he said.
Sri Lanka, Dr. Weerasooriya said, has the “most wonderful experience in banking”. And for this, he commended the Governor for steering the ship over the past several years, which has allowed the industry to operate successfully.
In terms of legislation required by the industry, he said that the Central Bank has taken measures to cover all areas in that regard and that no Sri Lankan banker can say that the country is behind in terms of the law.
The drawback in Sri Lanka’s legislation is that it still follows Roman Dutch Law along with Zambia and South Africa, which makes them the only three countries in the world to function under this legal system, but the banking industry has not been affected by this, he affirmed. “Has this worked against the banking system? It hasn’t, since there has been no criticism,” Weerasooriya asserted.
