Rise of financial institutions and Northern Province debt trap

By Mithula Guganeshan

Indebtedness has sharply increased within the northern region as the growth of average debt per family has risen from Rs. 52,000 to Rs. 194,000 as stated by the Central Bank Governor – thus demonstrating the lack of proper financial education and the discipline required to be financially fit, a crucial benchmark for a successful life.

Additionally, higher growth in credit from the private sector would be the key towards achieving sustained economic expansion due to tightened competition as stated in the ADB report. Due to the tightened competition among financial institutions, aggressive marketing and campaigns are executed to attract potential new clients. Any business with financially sound management would weigh their options before obtaining credit from the bank for further developments. Therefore the obvious choice is to tap the financially illiterate business owners with money, considered a good catch.

Targeting financial illiterates

Most of the time, these owners are retail or wholesale businessmen and there is potentially no room for further growth in this particular sector within the Northern Province. This clearly justifies the extraordinary levels of debt within the Northern Province and the number of awards won by the financial institutions for increasing credit growth. 

In the end, as promised the financial institutions have secured their own future and continue their development-oriented journey whereas the losses incurred by the common people are hidden behind the financial institutions’ big victories. 

Lack of proper financial guidance

There are people from the Northern Province who have lost millions in interest to these financial institutions, especially the businessmen, and it doesn’t stop there; they have lost their businesses, properties, deposits, and overall their lives. 

We need clarity when financial institutions promise us to be a partner for our lives/business, because some partners tend to be interested only in their gains. Why don’t these institutions proudly communicate how they have contributed towards improving private sectors growth especially in the Northern Province, through their financial guidance, if there is any to begin with?

There are instances where additional money was lent by mortgaging properties despite the lack of sufficient earnings from business to repay the initial loan itself. When someone is indebted, the whole family suffers the consequences in terms of depleted savings, psychological stress, borrows anew to repay, sell or pawn assets, subjected to harassment and threatening, suffers from shame/insults and finally seizure of assets. 

Of course, some may argue that financial institutions exist for this very reason, to lend to people. However, the least these institutions can do is to provide fairness, integrity and some justice to the financially illiterate.

Only profit focused

Financial institutions’ core objective should be focused on guiding everyone towards financial wellbeing; however, we are observing the ways and means exploited by these institutions to suck people’s life out through the so-called financial helplines. 

How is it ethical when institutions take advantage due to the lack of financial understanding and knowledge? Yet, in the present context, obtaining a signature is deemed sufficient to validate the financial guidance provided by these institutions. Most of the forms provided to the customers are documented in English, even when the customers cannot read a single word.

Sales driven culture

Financial institutions’ employees are only being trained to be a salesperson instead of actually being a trusted financial advisor, to help us achieve financial wellbeing. If educating the people financially is too much to ask for, how about meeting the basic requirements and actually caring about the financial wellbeing of the people? Unfortunately, educated people with academic background and sufficient money also fall into this trap. 

Everywhere you would see financial institutions with slogans promising better life and opportunities or securing future related advertisements on billboards, posters, newspapers, etc. Now the question is, whose life is being secured, ours or those of the financial institutions and its employees? It seems like the prime objective is to keep society in debt by creating the wants through the promise of better life but in reality people are being misled towards a bitter life. One example of the financial institutions’ sales driven culture would be the representatives dialling our phone lines and ringing our doorbells just to push off an unrequired credit card.

Create awareness 

Sri Lanka needs an external body to effectively regulate the financial service’s processes in order to improve financial literacy while protecting financial consumers. People’s financial experiences need to be heard by documenting the mishaps of the financial institutions within the high credit growth regions in order to serve the financial consumers with fairness and integrity.

However, the UNP’s mandate has recognised the need for a special institution to assist women in villages and war-inflicted areas affected from fraudulent activities from financial institutions in the past. This is quite commendable, yet a discriminatory approach targeting only women. Why are this special institution’s services limited to only women? Who is going to focus on helping the affected men from rural and war-inflicted areas?

If common people with insufficient money have been misled, then the firms with financially illiterate owners would have been the golden duck for these financial institutions. So shouldn’t this be also given enough importance?

The mystery needs to be solved; people should be probed regardless of gender, occupation, wealth, etc. to understand the reasons behind the enormous levels of debt in the north and east. The special institution needs to provide confidence to the people in order to defend their rights by offering the right advice and skills to make correct financial decisions. It’s very important to create awareness among the public regarding the Financial Ombudsman and all the other specially designed institutions to help people regarding fraudulent financial activities.

Initially, there was a lack of clarity when these financial institutions flocked towards the north with immense interest, following the end of the 30-year civil war. However, rising indebtedness validates the reason behind the disproportionate number of financial institutions to population within the Northern Province.

(The writer is a research enthusiast and can be reached at [email protected].)