Money market vs unregistered finance companies

Chandana WEERAKOON

The money market in Sri Lanka has had many secrets that the common man could not interface with. My aim in this article is to unfold the reality of the Sri Lankan money market to the public, who lose their hard earned money to manipulators whether Government or private.

Crestfallen depositors of Sakvithi Ranasinghe

Sakvithi Ranasinghe gave me this opportunity to start this controversial dialogue. Ranasinghe is a cheater that we all have to accept. But it is not due to him giving high interest rates; it is only due to him leaving the country and hiding from the clients and damaging the trust of the total business.

For that matter, the Government has to bear the responsibility for not monitoring and registering his company. Because, people had the psychological understanding about his company, as another financial company which give high returns for investments.

People do not forget the fraud of the Pramuka Bank, but they need to get the highest return for their hard earned money and also, to get rid of the high rate of unbearable tax rates of Inland Revenue.

The Central Bank has announced many companies who are in the money market but have not registered with the Central Bank. By only not registering an organisation it cannot become a rogue institute (for some reason Golden Key credit card company was not in the list though it is not registered as a financial institute).

The main factor that one has to be aware and understand is the services rendered by these unregistered companies to the common man.

Conduct of unregistered finance companies

During the following week almost all daily papers advertised many companies that are not on par with regulations of the Central Bank which are categorised to be illegal financial companies.

The public too are of the view that these illegal companies have cheated society enormously by way of manipulating money. But, analysing a few of these financial institutions, one can understand that they are not an anti social outfit that cheat the clients.

As an example, one can take Okanda Finance which has been in the money market for more than 15 years, but have never violated the basic financial principle of cheating the client, but they gave them attractive returns on investment. The other is Piyadasa Ratnayake’s money business at Hungama which is more than 16 years and the client base is exceed more than 12,500.

Also there are no bad reports for his total tenure of business. Also, after interviewing a few clients, I have found that they trust the company and the interest provided. Sriyavi Investments who provide 60% annual interest keep a surety with the customer according to the value of the denomination, specially a real estate property.

Those are the back grounds of some of the black listed financial institutes by the Central Bank that is not registered.

Analysis of money market

I have read in most of the newspapers that some financial experts are questioning how these companies are giving that amount of unrealistic interest rates. Also, one had said that due to the rapid flow of client money, the business will survive upto four years to the maximum.

For that matter, I say “yes” and “no” because the principle says,” greater turnover will thrive the business. But no. It is not the only reason for the survival. Most of them have survived and thrived more than the stated duration.

Now I will unravel the hidden factors of the business.

In Sri Lanka the inflation is around 30% annually. Maintain the value of the money client needs to get the annual interest at least equal or more than the inflation rate. Going to a registered company or a bank gives maximum to 19% (some companies offer 24% annual interest for a five year investment).

Therefore customers do not have any other option than taking a calculated risk.

In turn banks deduct 5% per month from customers as credit card interest. It goes as 60% annually, though the Central Bank keeps silent.

At present, we have to analyse the reality of the current money market in Sri Lanka. Real estates have 150% inflation per year, There are some businesses that borrow money for 10% interest per day when it comes to monthly interest 300% and the annual interest is 3600%.

The main businesses under this category includes middlemen trading in fisheries and the daily retail trading in the Pettah retail market.

Apart from that, middlemen keep very high and unrealistic profit margins in their businesses. As an example coconut business and the earlier paddy/rice business (during oligopoly). Over and above that, most of the export businesses gives high profit returns to the intermediate traders.

Then, if these money business companies involved and linked in one of the stated above businesses, they can provide high interest returns to their clients as well from 5% to 8% (monthly) respectively.

If the respective companies can offer the stated amounts, these companies are doing a great service to the country and society in terms of development and assets/profit sharing which reduces income gaps between the “haves” and “ have nots”.

Therefore, the Central Bank has to get out from the traditional frame as well as the grip of the unrealistic bankers oligopoly in order to give value to money transactions/distribution in the country.

Central Bank’s role

Under this specific scenario, Central Bank has to perform a greater task. The Central Bank should not destroy the image of these unregistered finance companies but try to make them the pivots of development.

Secondly they must get rid of the oligopoly of the Government banks and the private banks.

I feel at the moment the Government banks and private banks are not providing the necessary tools for profit and asset sharing and development of the clients investments because they offer much lesser interest than the inflation of the country. In simple they help clients to devalue their invested money.

Thirdly, the CB needs to analyse the reality of the money market in the country and the market economy and provide proposals and suggestions to implement healthy money distribution and reduce anomalies.

Finally, decision making should not destroy the national interest and the Government bureaucracy must not lose the common touch and the ground values.

Finally implement some devise to protect the nation from cheaters like Sakvithi Ranasinghe and the same time provide access to maximum returns on investment and benefit from the money market to the nation which drives and motivates and makes the nation successful. The country needs to tap the potential and analyse the reality of society.

There is a need to register these companies with people friendly regulations. I think the country has benefited more from people’s money than taxes. We have witnessed what happened to the taxes and how taxes are utilised for the development, and therefore, taxes should be minimal.

Also, it is important to discuss with the banks in the country to find why they cannot offer high returns to the clients without boasting of individual development but should be centered on the people of the country.

This is not an individual responsibility of the Central Bank but people need to aware, they must develop a public opinion of the subject.

Ministry of Finance should analyse and brief the head of the state giving a true picture and the situation. This article has a controversial, out of the box view.

There are more other realistic factors which I am not aware to be discussed in public to give more insights to the people. It will reduce the income gap of the nation and provide fair value for investments.