Rural markets attractive for NBFIs-LOLC MD

Ramani KANGARAARACHCHI

The rural markets are becoming more attractive to Non-Bank Financial Institutions (NBFIs) and those who go deep rural first will have more advantages, LOLC Group Managing Director Kapila Jayawardena said.

Kapila Jayawardena

Speaking on "Realigning business models of NBFIs at the Bank Directors' Symposium conducted by the Central Bank of Sri Lanka for non banking institutes, he said there are more opportunities in rural areas because most financial institutes are centred in the cities.

He added that there are still untapped areas and the population in the north and east as the banks have not been able to fully serve the two million people living there. The forces re-shaping NBFIs include competition, demanding customers, increasing prudential standards and increasing cost of doing business.

"The financial institutions must have a versatile customer base covering all industries and multiple income streams such as leasing, insurance and savings to diversify business risks. The finance institutes with few customers can give substantial credit facilities to their customers but if few of them go bankrupt the impact on the institution will be severe," Jayawardena said.

He said the financial institutes must diversify domestic funding sources through deep rural penetration and securitization and international sources like multilateral agencies, syndicated loans, funding and international bond issues should be pursued by the non banking sector.

Referring to the single channel concept in distribution excellence, he said the diverse customer needs catered through one channel will enhance efficiency, economies of scale, and will result in a multi skilled workforce.

Increasing scalability is necessary as streamlined network can accommodate more businesses. The low cost distribution model, agility and rapid penetration of the branch network will increase scale and productivity of the institution.

Jayawardena expanded his presentation to discus many funding alternatives available to banks and NBFIs in detail.

He mentioned that large financial institutions should explore the international bond markets.

The minimum amount will be over US$ 100 million and an international credit rating will be required.