‘Non-banking financial institutions to recover sooner than expected’

The Finance Houses Association of Sri Lanka (FHA) said that the post COVID recovery of non-banking financial institutions (NBFIs) would be sooner than expected provided that there is no second wave of Covid-19, FHA Chairman R.H. Abeygoonewardena said.

He said that the main reason for this is that the sector is not very large and the feedback they get from the stakeholders are positive. The NBFIs have also attracted more funds from international development financing agencies, compared to the banking sector over the years.

“NBIF sector has grown by over 20% annually from 2013, up to now to Rs.1.3 trillion while its loan disbursements have recorded over 21% growth during the same period to Rs.1.06 trillion.”

During the same period, loans and advances of the Regulated Finance Companies (RFC’s) have grown to Rs 1.066 trillion from Rs 471 billion. This 60-year-old industry accounts for around seven million customers at present in the form of 57-60% borrowers and 40-43% depositors while it houses about 32,000 employees.

The NBFI industry is funded mainly through public deposits (50%-55%), bank borrowings (25%-30%) and shareholder’s capital infusion (8%-12%). It consists of 31 listed and 8 unlisted finance companies. While 85% of the industry is dominated by the top 16 companies, which accounts for over 20 bn assets, the balance 15% is shared by the remaining 23 companies.

The industry has identified the need to reach to the general public and expanded the branch network to more than 1,350 branches. In addition to its robust growth, the industry has paid attention to the betterment of the country and approximately Rs. 16 billion was paid by the industry in the last financial year in the form of direct taxes.

“However the profits of the companies would have a dip for the last financial year due to the impact of twin tragedies of Easter Sunday and COVID.”

He also said that customers are paying back their dues sooner than expected and this is very encouraging.

NBFI sector has played a crucial and important role in meeting the needs of the masses of first-time borrowers who need funds but do not have the formal documentation required by the banking sector. “Licensed Financial Companies are involved in serving borrowers who are generally excluded from the formal banking sector.”

Past Chairman Krishan Thilakaratne said that they observe a strange development in the gold pawning segment where most of the pawned jewellery are redeemed. ‘Also we see people pawing them in the last few months again and redeeming then quickly which shows people are using gold pawning to raise working capital for the Micro and SME sectors.” To page 18

“Generally LFCs are involved in providing financial services such as offering of small-ticket personal loans, financing of two/three-wheelers, truck financing, farm equipment financing, loans for the purchase of used commercial vehicles/machinery, secured/unsecured working capital financing, etc. LFCs are considered to take a lead role in providing innovative financial services to micro, small and medium enterprises (MSME) most suitable to their business requirements,” said Council Member Sanjeewa Bandaranayake.

“It is evident that some fraudulent acts of non-regulated finance companies have led to misconceptions about regulated finance companies and practical reforms need to be made in order to streamline the finance industry,” said FHA Legal Advisor Shiranthi Gunawardena.

FHA suggests enacting the proposed Money Lending and Micro Financing Act to prevent lending activities unless registered under that act, create a special investigation unit to investigate and to enforce action on unauthorized institutions operating in the country, creating a healthy NBFI operating environment.”

FHA acts as the apex body of 39 registered finance companies with CBSL and is the successor to Ceylon Hire purchase and Finance Association.

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