28 June, 2022


Poverty As A Business: Financial Institutions In Sri Lanka

By Mithula Guganeshan

Mithula Guganeshan

Mithula Guganeshan

Majority of Sri Lankan’s, almost 84% are either financially struggling or suffering according to the survey done by Gallup Healthways in 2014. In other words, people are unable to meet their current financials and future obligations while making choices that allow enjoyment of life. Everything can be attained higher education to dream house however only at the cost of obtaining a loan.

Increasing debt levels not only erode earning potential of the targeted population while serving as a blockage to progress far, resulting in greater poverty, exclusion and dependence.

As stated by Sir Josiah Stamp, Director & President of the Bank of England during the 1920’s, the modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in iniquity and born in sin. Bankers own the earth. Take it away from them, but leave them with the power to create money and control credit, and with the flick of a pen, they will create enough money to buy it back again. Take this great power away from the bankers and all the great fortunes will disappear, and they ought to disappear, for this would be a better and happier world to live in. But if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money and to control credit.

Financial Institutions in Sri Lanka needs to maintain a Statutory Reserve Ratio (SRR) of only 6%, the proportion of rupee deposit liabilities maintained as deposits within Central Bank apart from the money provided as credit to the customers. SRR justifies and confirms the truth that the banks create money out of nothing. The twisted modern banking system grabs a share of our earnings continuously in the form of loan repayment and interests, interestingly from money created out of nothing. A witty method used to make the rich get richer while explaining the enormous wealth gained by the key shareholders of financial institutions.

CEO’s of financial institutions proudly claims on newspapers the profits recorded in millions, resulted from higher rates of lending. Sri Lanka still remains as a country with higher borrowing costs which results in an escalated cost of product & services during each value addition stage. How is it fair that the financial institutions charge massive amounts as interests for money that clearly doesn’t even exist? In the past Usury, the practice of lending money at excessive interest rates was prohibited and condemned as it was considered the exploitation of the needy, mainly on ethical, religious and moral stances. However, today’s economy functions only by continuously injecting credit into the system. If the majority of the population doesn’t benefit, why does such a financial/economic system exist? How long would this ignorant system continue, where the rich feed by eating off from the poor?

Microfinance aids to deliver holistic modern slavery

In the recent times, microfinance is aggressively used to increase the profit of financial institutions. Thus, targeting the previously ignored segment, people from bottom of the pyramid with low income and unable to access typical banking services. Microfinance institutions’ justification for their existence is to alleviate poverty and for women empowerment. However, micro finance institutions clearly communicate its purpose is aimed at the opportunity to earn profits from millions of unbanked poor excluded from normal banking facilities. Most importantly these excessive loans are obtained by people for their day to day consumption thus; the borrowed money is hardly being used for any economically viable activity resulting in difficulties to repay. If the notion was to actually reduce the poverty why are extremely high interest rates charged especially from those earning just enough to survive on a daily basis? Certain loans command weekly repayments, borrowing a sum of Rs. 25,000 would lead to Rs.1,000 weekly repayments for 10 months resulting in an interest rate of 70% per annum. How can one alleviate poverty by charging such horrendous interest from poor struggling to survive on a daily basis? It is crucial for Government, NGO’s and social enterprises to step in and work towards reducing poverty effectively.

Microfinance institutions are registered in the share market where shareholders’ interests obviously weigh more than the poor clients. Increasing share prices of certain micro finance companies over the last two years adds an interesting essence to the picture. There is a lack of quantifiable data to illustrate the improvements in terms of the shift from below poverty lines towards the next segment. Generally, microfinance institutions boast based on internal surveys about the particular % crossing the poverty lines, regardless to mention the biasness in the survey results.

Those financially thriving are occupying the top positions in different types of organizations working with a minimal interest towards protecting or releasing people from unnecessary financial burden. Proper financial consumer laws need to be adhered to protect the poor & needy struggling to survive on a daily basis. Lawyers and activists working for people are eventually bought over by the financial institutions, while the people are left with nothing but to defend their own rights or end up as slaves nodding to those in power. Unregulated financial institutions providing excessive credits at higher interest rates bring more harm than good. Government needs to focus and extend its arm in terms of providing financial consumer protection to those struggling and suffering financially.

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Latest comments

  • 3

    There is a lot of cheating goiung on on loans. Situ is a method where very often cheating take place. The poor man often has to pay an interest of 2405 and this leads to him geting in a postion of borrowing to pay the interest. The government steps in for loans againts gold jewelry. The padddy farmer is in the hand of the middleman who loans him money at a exorbinant interest rate. Religous organisations step in with strings attached to hand out loans.
    People must also be taught how to regulate expenses. They should keep accounts if ppossible and maintain budgets.
    WE need a urgent solution to this problem. UN organisations should give us funds to make available funds for the small man.

  • 7

    People should learn to live within their means. Sri Lankans of all religion and race and of all income status embark matreialistic rat race.

  • 0

    So Mithula,what you are saying is Money is the root of all Evil?

  • 0

    Absolute truth .

  • 0

    Mithula , putting it in a different way , the price for
    freedom . Buy one and get one for more.

  • 0

    Ms Guganeshan, you have been leading a sheltered life indeed.

    Our Sri Lankans are a pollsters nightmare. They will never let you know how they truly feel or acknowledge how well they’re off. I have watched them prosper over the last 70 years and, to coin a phrase, they’ve never had it so good. AND, it is about to get better!

    Fact of life is that all debt is not bad. Borrow to invest wisely, NOT to spend profligately. My young nephew bought some land for 30,000 a perch fifteen years ago, sold some of it for 600,000 a perch last year. Another friend, borrowed some money to send his son to Imperial College. The young man now works in the City of London and has gratefully passed on some his £150K bonus to Daddy and Mummy. Nice! Borrow smart, invest wisely and reap the rewards. AND never let pollsters know how well off you are!

    • 2

      Spring Koha,

      What travesty you understand Lanka’s financial situation by!

      Your young nephew’s 30,000 a perch fifteen years ago, that was sold for 600,000 a perch last year is due to untaxed profits being concentrated at the top, for the moneyed elite, effecting in severe inflation of property prices, quite devoid of country’s true worth.

      That type of money trickles down for a few “lucky” ordinary folk (others sit in awaking anticipation for their amounts to come to them,…..to no avail of course, except that property prices went up 1000-fold, and all they have is to talk about it, and wonder at its splendor).

      (some of the money comes in from Australia, with the China factor, that inflated their prices that rolled back into Sri Lanka to create inflationary prices in Sri Lanka).

      The money was doled out to your nephew, so that buyers could take time-honored land of the Lankan Bumiputras, to further invest on housing schemes or industrial sites, so they can further proliferate their wealth, and revel globally in their privilege (justified through educational pursuits…..which is somehow worse than e.g. Chinese money-speculators, because it is disguised as propriety).

      As for your friend who sent his son to London: That borrowed money should have been used in-country, and not used to further augment the country of the former Colonial-Master. That long-due 150K bonus would have been many-a-good-long-years coming back to Sri Lanka’s coffers, and it would have been a lucky break that he got that amount soon (he must have won some lottery, or done some shady deal, or was just plain brilliant and invented some cool, though unnecessary gadget, or defended some scoundrel). Truth is, London is an expensive place to live in, and money doesn’t come in too easily for the average professional earner.

      But, the ordinary folks are taking out loans to pay off college costs in Western lands (based on your friend’s supposed success-story). They then lick after Lankan politicos and other moneyed-elite so much of the debt is obliterated (hence, is the head-honcho system is propagated, at the expense of the Lankan rupee note). Or they sell off time-honored sacred Lankan land to property developers.

      Yes, debt is not too bad a thing. But it should be Sri Lanka’s in-house debt with loans borrowed to keep the monetary value of Sri Lanka in balance.

      And of that amount of money the country possesses (or borrowed from other countries or world organizations), so that it can be given as loans to the masses, the first and foremost step is for adequate taxation on profits of loans on moneyed-elite. This will ensure that money will remain in- country and systems will be developed by-the-country, and for-the-people, instead of most of it going to places like London, and finally (if lucky), after many years, returned, and without interest at that.

      • 0

        correction : gawking anticipation

    • 2

      Spring Koha

      Is it worth your time and energy responding to ramona mother therese fernando?

      • 2

        Native Vedda,

        It is only worth it if you care deeply for the masses, and want to consolidate Sri Lanka as an honorable Nation.

        If on the other hand, one wants to awe and gawk at riches that come from thin air, rather than from actual substance, then go ahead and be opportunistic.

  • 0

    Finally , a law to provide for prudential regulation of Microfinance is ready.
    Hope it is enacted soon.
    Mr. Ranil Wijesekera-
    Seetu’s also are regulated , there is a Law , British Era, but the regulator is sleeping !
    A number of financiers are providing glorified hire purchase and branding it as MF, this must be stopped

  • 0

    Disguised as Spring Koha,sheltering your identity?

  • 1

    Very nice write up, Mitula, majority of us Sri Lankan’s got the islanders mentality and have a huge thirst for show off and live a posh looking life, especially in the cities.
    For a poor villager, laborer who gets a Rs.1500/- per day salary and he has no cost for Gas,petrol or school van fees, or taxes to pay and he lives a very simple life. Children going to village school in slippers, or bear feet, walk to school, he uses a push bike. after buying his groceries in 100 and 200 grams, picking a coconut from a land and some green leaf on the way home he is too happy with his simple life. that’s circa 75-80% of our population.May be wife goes to a ME country for two years for a little bit of luxury, if they are lucky comes back alive with some cash and stuff.
    In the cities most of the people are running on loans, credit cards, just to keep up with the society. Little less than 1 million credit card holders, ows the Banks nearly 10 billion. 89% of the vehicles on the roads are running on leases and loans..including mine. This is not a nice way to run a country economically or politically. Wealth is not shared properly and how long these Lankans going to live in these two extremes.Well politicians use both these groups to plunder the country..

  • 3

    The issues you raise are spot on. The process of money creation really is a global scandal. The truth is hidden from the public by powerful groups with vested interests, those who benefit from the status quo. Despite the all odds against them, there are many international organisations trying to bring this out into the open. In the UK, http://www.positivemoney.org is one such group. They have also proposed a very practical solution – sovereign money – where the central bank (or an independent money commission) decides on the volume of money supply needed in a country. Private banks will NOT be allowed to create money out of nothing. They have to make their profit by taking this central bank created money and offering a value adding service. Once again it’s a challenge to get the message out because its not in the Interest of the establishment. Positive Money have many sister organisations in Europe. One in Sri lanka would be nice too – Mithula, you should set it up!

  • 3

    I believe the disparity between poor and rich caused by the taxation system in Sri Lanka. Our taxes are mainly Indirect taxes which are added to the goods and services and paid by poor and rich in the same way. Any tax system should charge more tax on Rich and lesser on poor. The reasons for depending on indirect taxes is efficiency of the Inland Revenue Department, tax evading attitude and corruption.

    The highest tax rate for Individual income tax in Sri Lanka is 24% while the same in UK is 45%. See comparison for the two countries (2014/2015;

    In Sri Lanka….
    Tax Free Allowance LKR 500,000
    First 500,000 (After allowance) – 4%
    Next 500,000 – 8%
    Next 500,000 – 12%
    Next 500,000 – 16%
    Next 1000,000 – 20%
    on balance – 24%

    In the United Kingdom…..

    Tax free allownace – £10,000

    Basic Rate upto £31,865 – 20%
    Higher Rate £31,866 to £150,000 – 40%
    Additional Rate over £150,001 – 45%

    Highest income earners in the UK pays upto 45% the counterparts in Sri Lanka pays 24%

    Is it because the policy making in Sri Lanka is controlled by the Rich??

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