Conducive environment for growth of finance companies - Chairman Sinhaputhra Finance

The environment now in Sri Lanka is conducive for the growth of finance companies. The Finance Company sector had, by end - December 2004, accounted for Rs. 38 billion in public deposits and Rs. 66 billion approximately in total assets. But this is about 3.5% of the total banking assets in the country says Kithsiri Wanigasekara, Chairman and Managing Director of Sinhaputhra Finance Ltd.

The growth of finance houses makes its mark in the growth of the economy. "This is why it does not satisfy me to see a handful of Finance Companies reach upwards and outwards, while others do not record such growth.

To every finance company, growth must be that of deposits, total assets, interest earning assets and greater and more widespread financial performance." Finance Company sector has made an indelible mark in this country's economic and development scenario. The performances of finance companies have been most positive.

Wanigasekara has geater confidence in all operations, an insistent image-building and, above all, a "basket of incentives" that, in many ways, attracts small and large savers, institutions, industries and small and medium enterprises and entrepreneurs. In Sri Lanka, too, the new business outlook has seen the opportunity to build up "empires" and it is left to be seen what the overall effect would be.

Wanigasekara, who was the Chairman of the Finance Houses Association from 1998 to 2000 said that finance leasing and Hire Purchase Finance is funded mainly through public deposits.

"Such deposits carry high rates of interest. And yet, banks are also able to offer attractive lending rates on finance leases and Loans because of the low cost of funds they experience.

Wanigasekara pointed out to the significant contribution finance companies made to the transportation sector. He stressed on what could best be described as the "concerned human approach" where finance companies enhanced the economic activity of the rural and informal sector.

"We have provided finance leasing and lending facilities, spread the message of savings deposits, made the rural sector see the importance of forging ahead as small-scale entrepreneurs, building up trades. There are thousands of people who need to get on their feet, build up their own ventures, be they big or small. Finance Companies must now expand their operations to all geographical locations - in short, go where no bank has gone before! The opportunities are enormous!"

There are the obstacles that arise in the operational areas - particularly the delays in the recovery of delinquent loans, usually because of the law's delays. "The non-performing loan ratios of most finance companies are high. We perform in a high-risk arena and obviously we are dealing with clients who are not able to command the acceptance or services of the formal banking sector," he said.

But, this is a risk factor that is inevitable and a finance company needs to be able to surmount this by the employment of good recovery procedures and a human approach. The need to strengthen debt recovery legislation for the recovery of delinquent loans is important."

He also said that credit risk, liquidity risk and interest rate risk are the key factors the finance companies must take cognisance of.