Credit counselling - a social initiative to meet a vital need
Credit counselling, or the provision of financial advice and guidance
to borrowers to help them in the prudent use of funds obtained and
credit availed and prevent them from getting into difficulty and
defaulting on payments, and helping borrowers who have already fallen
into distress to review their finances, reschedule their debt payments
and stage a recovery of their businesses, is a vital aspect of
maintaining the financial health of both borrowers and lending
The Sri Lanka Banks Association, with strong support from the Central
Bank of Sri Lanka, has therefore taken the initiative to provide credit
counselling services with the setting up of a special counselling centre
at the Central Bank Centre for Banking Studies at Rajagiriya.
This meets a vital need in providing advice and financial education
to borrowers and credit seekers especially in the wake of global events
and local developments. This initiative, with its focus on carefully
planned financial management and recovery from default, is relevant to
both lending institutions and their customers and is aimed at relieving
debtors of the burden of their debt and enabling them manage their
Various counselling programmes of this nature have been implemented
in many parts of the globe with separate institutions set up to
discharge this responsibility. Customers as well as financial
institutions are pushed into dire difficulties due to loans taken in a
careless and ignorant manner. A major problem that could be highlighted
in this context is the failure to wisely invest the proceeds of the loan
and the failure to settle the loan at the given time.
There are also frequent reports of credit being used lavishly through
credit cards without concern for timely settlement which eventually puts
such users in deep trouble as their debts and interest costs mount. This
calls for urgent measures to arrest this situation and promote a sound
Despite the fact that this country is somewhat ahead in banking and
financial sectors compared to other countries of the Asian region, it is
a matter for regret that as far as obtaining loans and utilization of
such monies are concerned, we are at a rudimentary stage. A well defined
programme to correct this situation is, therefore, a long felt need.
While the situation in Sri Lanka has remained such, credit
counselling on the provision of financing and credit is more advanced in
neighbouring India. The Bank of India’s Credit Counselling Centre has
been established for this purpose.
It was the first of its kind in India and has succeeded in providing
a yeoman service to Indian financiers. Together with other organizations
such as the ICICI Bank’s Credit Counselling Centre, they have dedicated
themselves to creating awareness among the public about these services
and in promoting financial discipline.
The Indian Credit Counselling Centers operate on the concept of a
public service without earning a profit. They always make an effort to
lessen the credit burden of the debtors enabling them to better manage
their finances with proper investments.
A special knowledge is required in managing the finance of financial
intermediaries and persons with assets. The methods used by banks to
structure the loans of some organizations are far too complex for small
and medium scale entrepreneurs.
In such a situation, they seek financial management through means
that are not legally sanctioned. Furthermore, there is also a trend on
the part of borrowers not to provide correct information to the banks.
We also see an escalation in the trend towards borrowing and defaulting
in loan repayments and this situation cannot be controlled by a third
This makes it important for financial institutions themselves to
provide loan management services with respect to those who obtain credit
from such institutions.
The contributory factors to default are the erosion in earnings and
an increase in interest rates. Good financial management also depends on
striking a balance between income and expenditure.
Therefore, it becomes important for counselling to focus on three
aspects - resolution of the existing financial problems, creating
awareness on the expenses incurred due to the misuse of credit and
promoting financial management and control of expenditure. It becomes
important here to guide those facing financial difficulties towards a
structured financial method.
Counselling could be either pre or post loan guidance.
Pre-counselling involves guiding the loan recipient to assess his
financial standing and repayment capacity before obtaining credit.
This would reduce instances of loan default. Post loan counselling is
aimed at preventing further indebtedness when repayment is disregarded.
Credit Counselling has become an important factor for banks, enabling
the institutions to assess the risk factors and the ability of debtors
to repay the loans.
In Sri Lanka, the rural folk have a better experience in credit
management since they have a lesser tendency to obtain credit and
possess a natural instinct towards managing their funds. In contrast,
due to less prudent approaches to using credit, urban folk have often
shown an inability to manage their finances well and end up facing major
The ‘Upadeshana’ Credit Counselling Centre is expected to commence
operations on January 19 from its location at the Central Bank’s Centre
for Banking Studies in Rajagiriya and will also offer its services in
various provincial towns for the convenience of people in these areas.