Fossils to the fore: CB extends retirement age of directors in finance companies beyond 70

By a Special Correspondent

The Central Bank has issued a Direction on all finance companies (Finance Business Act Directions No. 5 of 2020) on 18 May extending the retirement age of their directors beyond the current age of 70 years, citing the prevailing corona outbreak and ‘difficulty in finding experienced personnel’ as reasons. This action by the Central Bank is woeful for a number of reasons. 

Even before the COVID outbreak the Central Bank publicly admitted that several finance companies under its purview are in serious financial difficulties and attributed this largely to the mismanagement of these finance companies. However, through the above Direction the Central Bank is allowing the very same people responsible for the mismanagement of these finance companies to continue even after their retirement age. The Central Bank is rewarding them by a further tenure, instead of holding them accountable for their actions. The motive for this is beyond any reasonable comprehension unless corrupt!

The Direction brazenly cites as a reason a difficulty in finding experienced professionals to hold office as directors in finance companies. Any person with general awareness knows that we have an abundance of well qualified and experienced banking and finance professionals; so much so that many expatriate due to insufficient opportunities. In this context, this reasoning given by the Central Bank is absolutely shameful!

The banking and finance business is not the same as running any other business; the directors of these companies are custodians of public funds. Therefore, they have a high degree of responsibility and to discharge such responsibility the directors should have peak mental capacity. An objective measure used for this world over is the age criterion. This is why in most countries the age of retirement for directors of banks has been set lower than the retirement age for directors of ordinary companies. However, it is a well-known fact in Sri Lanka that finance company boards are a retirement home for former bank directors and even Central Bank officials!

The objective of having less capitalised and regulated finance companies in the system is to better serve the unbanked community and increase financial inclusion. How can you expect a board of directors over 70 years to have any understanding of the circumstances of the unbanked population in the country with such a vast generation gap? How out of touch are they with the youth and rural communities of the country?

Finance companies should be a stepping stone for banking and finance professionals. They should start their careers in finance companies and progress to banks, which are more sophisticated and highly regulated. It should not be the other way around as is the case now. This is perhaps the reason why finance companies are failing to reach the unbanked communities despite it being the purpose of finance companies. These people resort to loan sharks and unscrupulous micro finance organisations because the bank styled run finance companies are too sophisticated for them.

Being somewhat of a precursor to banks, finance companies are an ideal setting to test and adopt new technology, including Fin-tech. The adoption of these technologies also helps to reach the unbanked and increase financial inclusion. However, with boards over 70 years, it is unlikely that finance companies will be able to innovate and give the banking and finance industry the much needed technology boost! This is an essential prerequisite if Sri Lanka is to become a financial hub of any sort in the future. 

We are living in times where an unprecedented number of young professionals are leaving the country due to lack of opportunities. These youth carry out pioneering work in foreign countries, whereas we are left with senile old men and women well passed their retirement age occupying positions that are required to embrace the new age! This is one of the main reasons why the Sri Lankan banking and finance industry is lagging compared to the fast developing countries in the region. Allowing capable young professionals to hold responsible positions in the banking and finance industry is a must if Sri Lanka is to develop as a financial hub in any form. 

Hopefully there is a sufficient public outcry against this new Direction of the Central Bank so that it will be rescinded by the same or higher authority. Keep in mind this Direction only serves the people who have mismanaged these finance companies for so long and maybe the officials who seek a retirement home in these finance companies! The public, the depositors of these finance companies are the once at peril!