Commonwealth Asian Conference jointly organized by Central Bank

Commonwealth Asian Conference on Financial Inclusion and Financial Literacy, jointly organized by the Central Bank of Sri Lanka and Commonwealth Secretariat held on March 19-20, at the Centre for Banking Studies. Perspectives of Fianacial Inclusion and Fiancial Literacy as a Development Tool and Poverty Alleviation

Introduction

Recently concluded symposium on Financial Inclusion and Financial Literacy, held at the Centre for Banking Studies of Central Bank of Sri Lanka shed light on new vistas of the development economics of emerging economies enduring a greater implications of development efforts and efficiencies of these countries, partuclualry the Asia-Pacific Region. Major objective of the conference was to disseminate knowledge on principles and best practices of Financial Inclusion and Financial Literacy, fostering and sharing experience of the particiapting countries. Representations were made from the Commenwealth Secretariat, Asia Pacific Group Secretariat, Malta Financial Seriveses Authority and from the government agencies and central banks of Pakistan, Bangladesh, India, Malaysia, Maldives and Sri Lanka.

A sizable population of the world, particularly, the poor, low income and vulnerable group remain excluded from most basic financial services provided by financial sectors. The inevitable impact of the situation is perpetuation of poverty and disparities in income distribution in incremental proportions. The poor, low income and vulnerable groups were obstinately excluded from accessing financial services with seemingly difficult terms and conditions set up by the financial service sector. It has been universally accepted that developing financial sector and improving access to financial services would accelerate economic growth and helps to achieve inclusive growth. Inclusive growth is a little more than just the benefits but growth distributed equitably and evenly.

Opening the symposium, Mr. Ajith Nivard Cabraal, the governor of the Central Bank of Sri Lanka remarked in his feature speech that the Central Bank keeping in line with the government policies has initiated many financial inclusion programs empowering the rural community of Sri Lanka, who otherwise would have been denied financial support from lending institutions.

In terms of the Commonwealth Goal of strengthening policies and systems that support economic growth in member countries, Cheryl Bruce, Economic Advisor, Commonwealth Secretariat, asserted the fact that they would help increase the financial inclusion in Asian Commonwealth countries to repudiate the anomalies of the poor in the region which would help increase savings, credit expansion, investment and enhance financial intermediation thus reducing social disparities. Particularly, youth programmes are afoot to provide skills and resources to create their own business ventures, help them develop their professional skills to be employed, thus helping them to play a greater role in economic and social development Definition of Financial Inclusion and Financial Literacy Financial inclusion generally refers to creating an environment for all stakeholders of the economy to have the access to the formal financial sector facilities at a reasonable cost, while financial literacy refers to the ability to understand how money works and how to manage financial matters irrespective of their size or degree of sophistication. In the recent past, Financial Inclusion as well as Financial Literacy has become a policy priority in most developing countries, as it will increase the policy effectiveness and foster inclusive and balanced growth. This definition clearly emphasizes the fact that every citizen of an economy should be able to access the financial facilities available, irrespective of their social standings or otherwise become financially excluded.

The financial exclusion is tantamount to the inability, difficulty or reluctance of particular people to access mainstream financial services. Socially marginalised people, working in the informal sector like small and petty vendors, home-based workers, artisans, labourers, and unemployed youth desperately need financial services from formal financial institutions and they are frequently denied of services due to their inability to provide collateral for such lending. Financial Inclusion consistently correlates with eradicating poverty. Eradicating poverty is the most daunting challenge ever confronted in the development efforts. Poverty is amply displayed in terms of the ever increasing phenomenon of the disparities of the income distribution in Sri Lanka. According to the Central Bank Report 2011, the bottom poorest 20% of the population receives only 4.7% of the country’s total income. This manifests the magnitude of the dilemma. Even though acute poverty is no longer an issue, poverty still remains widespread and continues to be a challenging problem in Sri Lanka.

Financial Inclusion

The poor farmers in Sri Lanka require substantial investments on agriculture farming, needed to be included in the financial inclusion in which they would be able to secure loans from formal lending institutions. In the absence of an adequate access to the financial services of the formal sector they naturally tend to seek the amends from the informal sector, the private money lenders, who would not only be exploitative in terms of lending but ultimately grab their harvest at a low price in lieu of the borrowings. As a result, the poor are caught in a debt trap; they borrow at very high interest rates. So is in the case of other sectors as well, i.e. Micro, Medium and Small industry sectors. A formidable and effective financial inclusion system should be in place to help them build their own capital assets and business. Such a formidable strategy would definitely need a paradigm shift in every aspect and many experience and initiatives could be drawn from similar case studies submitted at the Colombo Commonwealth Symposium.

Government of Sri Lanka has initiated many regional development programmes under the different themes such as Rajarata Navodaya, Uthuru Wasanthaya etc., and the Central Bank of Sri Lanka has introduced many MSME development credit facilities through the network of commercial banks utilizing the credit lines available from various sources.

Youth Perspective of Financial Inclusion and Financial Literacy

One in every five persons in the world are in the age group of between 15 and 24. Young people in the third world countries are indifferently affected with unemoplyment. UN World Report 2011 reveals that lack of job opportunities, inadequate education, viulnerable working conditions and insufficient government intervention are some of the reasons of main concerns of young people around the world.

Sri Lanka has long been regarded as a model of a successful welfare state, yet it has for decades faced major challenges in providing employment and meeting the aspirations of youth. In Sri Lanka youth unemployment between the ages of 15-24 years rose from 18.8 in 2008 to 21.3 in 2009 and has dropped marginally ever since to 19.4 in 2010. Thus youth employment is a major issue in Sri Lanka caused by myriad of factors inherent to the education, social and skills.

The Commonwealth Youth Programme

*Provides skills, resources and contacts for young people to create their own business ventures.

*Develops youth work as a profession.

*Provides learning tools, models, Commonwealth experiences and best practices across countries and regions.

*Helps young people play a greater part in economic and social development.

Assessing the Asian financial inclusion landscape, several case studies were submitted at the symposium by Central Banks of Pakistan, Malaysia and Bangladesh and from Fiji and India. Sri Lanka could draw stimulations from these regulatory schemes and structural strategies operated in these countries. Sri Lanka is targeting per capita GDP to exceed US $ 4000 by 2016. This target would be extremely plausible if financial inclusion and financial literacy programmes in the country are included in the country’s economic policy priority programmes