Wednesday, 4 March 2015 00:00
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The end of the war brought unprecedented hope and economic expectations to the people in the north and east. But the incident of a businessman from Ampara setting himself on fire at a finance company underscores the deep indebtedness that has gradually taken over and created a scary prospect for these communities.
When the war ended in 2009, there was a flood of finance companies and banks to the north and east. Understandably it was seen as an important development that would pave the way for the former war-torn regions to join the economy of the rest of the country. Loans would be needed for companies to restart their production, resettled people required money to resume their normal lives and much demand was the result. Businesses were also keen as they saw a fresh market they could expand to, theoretically it was a win-win for everyone.
But reality proved to be a bit more complicated. The wave of euphoria that hit at the end of the war also prompted a lot of families to borrow, imprudently as it turned out, to make ends meet and enjoy a few basic products such as electrical items, which had become staples to their counterparts in the north. Many borrowed small amounts in the grand scheme of things, but a burden given the high interest rates and the limited post-war employment opportunities available.
Groups such as farmers who had so far scraped by on subsistence farming took loans and many families also invested in vehicles such as three-wheelers and motorbikes. Economists also insist rampant advertising by finance companies and banks tempted people to take risks they weren’t competent to absorb. Finance companies have hit back by insisting they were merely catering to demand and not creating it. Loan granting companies were also hampered by limited mechanisms to track the credit viability of clients and many temporarily cashed in on this by taking several loans from different places, ultimately getting caught in a debt trap.
Sri Lanka has a high level of bank density. Access to banks is no more of a problem in the north and eastern regions than in the rest of the country. With 21.66 branches per 100,000 inhabitants, branch density in the north is higher than in the Netherlands. The east, at 16.8, is close to the nation-wide average but even this is on par with Chile.
Yet, the sheer number of banks hides a much deeper problem. According to experts, policies designed to promote entrepreneurship and long-term investment have been consistently absent from Sri Lanka’s post-war development strategy, which instead relied heavily on loan-based infrastructure projects. This resulted in the real economy of the region stagnating with little job generation. So when people had no other source of income, they borrowed. Having borrowed, they had no way of paying back.
Remittances and microfinance remain lucrative in the north and east, but policy loopholes and disinterest in fixing the economy by generating jobs has resulted in desperation. The businessman who self-immolated did so because he could not continue his work and felt helpless. Such desperation is dangerous and unless quick steps are taken to resolve this issue and reduce the debt repayment, many more such stories could hit headlines.
