23 September, 2017

Rise Of Financial Institutions & Northern Province Debt Trap

By Mithula Guganeshan

Mithula Guganeshan

Mithula Guganeshan

Indebtedness sharply increased within the Northern Region as the growth of average debt per family rises from Rs.52, 000 to Rs.194, 000. Thus, demonstrating the lack of proper financial education and the discipline required to be financially fit, crucial benchmarks for a successful life. Additionally, ADB report states that higher growth in credit from the private sector would be the key towards achieving sustained economic expansion due to tightened competition. Financial institutions needs to increase their credit growth from the private sector therefore aggressive marketing and campaigns are implemented to attract potential new clients. Any business with financially sound management would weigh their options before obtaining credit from the bank for further developments. Therefore, the obvious choice is to tap the financially illiterate small business owners, those easily buying into the idea of obtaining a loan in the hope of improving their businesses.

Most of the time, these owners are retail or wholesale businessmen and there is potentially no room for further growth in this particular sector within the Northern Province. Clearly justifies the extra ordinary levels of debt within the Northern Province and the number of awards won by the financial institutions for increasing the credit growth. In the end, as promised financial institutions has secured its own future and continues its development- oriented journey whereas the losses incurred by the common businessmen are hidden behind the financial institution’s big victories.

JaffnaThere are businessmen from the Northern Province who have lost millions as interests to these financial institutions and it doesn’t stop there, they have lost their businesses, properties, deposits, and in overall their lives. We need clarity when financial institutions promise us to be a partner for our business, because some partners tend to be interested only in their gains. Why don’t these institutions proudly communicate how they have contributed towards improving private sectors growth especially in the Northern Province, through their financial guidance, if there is any to begin with?

There are instances where additional money was lent by mortgaging properties despite the lack of sufficient earnings from business to repay the initial loan itself. When someone is indebted, the whole family suffers the consequences in terms of depleted savings, psychological stress, borrows anew to repay, sell or pawn assets, subjected to harassment and threatening, suffers from shame/insults and finally seizure of assets. Of course, some may argue that financial institutions exist for this very reason, to lend to people. However, the least these institutions can do is to provide fairness, integrity and some justice to the financially illiterates.

Financial institutions core objective should be focused on guiding everyone towards financial well-being; however, we are observing the ways and means exploited by these institutions to suck people’s life out through the so called financial help lines. How is it ethical when institutions take advantage due to the lack of financial understanding and knowledge? Yet, in the present context, obtaining a signature is deemed sufficient to validate the financial guidance provided by these institutions. Most of the forms provided to the customers are documented in English, even when the customers cannot read a single word.

Financial Institution’s employees are only being trained to be a salesperson instead of actually being a trusted financial advisor, to help us achieve financial well-being. If educating the people financially is too much to ask for, how about meeting the basic requirements and actually caring about the financial wellbeing of the people? Unfortunately, educated people with academic background and sufficient money also fall into this trap.

Everywhere you would see financial institutions promising “better life and opportunities” or “a secure future” advertisements on billboards, posters, newspapers etc. Now the question is whose life is being secured, ours or the financial institutions and its employees? It seems like the prime objective is to keep the society in debt by creating the wants, through the promise of better life but in reality people are being misled towards bitter life. Why do representatives keep dialing our phone lines and ringing our door bells just to push off a credit card, if they are focused on improving customer’s financial well-being.

Sri Lanka needs an external body to effectively regulate the financial service’s processes in order to improve the financial literacy while protecting the financial consumers. People’s financial experiences needs to be heard by documenting the mishaps of the financial institutions within the high credit growth regions in order to serve the financial consumers with fairness and integrity. Currently there is a lack of an external regulation in order to address the complaints fairly. The external body needs to provide confidence to the customers in order to defend their rights by offering the right advice and skills while making financial decisions.

Initially, there was a lack of clarity when these financial institutions flocked towards North with immense interest, following the end of 30 year civil war. However, rising indebtedness validates the reason behind the disproportionate number of financial institutions to population within the Northern Province.

References
http://www.economynext.com/Sri_Lanka_to_boost_financial_literacy_in_the_North_as_indebtedness_climbs-3-1744-17.html
http://www.news.lk/news/business/item/3217-sri-lanka-projected-to-maintain-7-5-gdp-growth-rate-next-year-adb

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Latest comments

  • 2
    2

    I think NP should resolve the major issues in the province.Drug menace,liquor and the war widows.Even in Bangladesh the women has formed cooperatives and running by themselves.They should do biz like growing,ornamental fish,sea food export,palmyrah products export etc.instead of waiting for handouts from the Govt.or from relatives.I am shocked to learn that the previous Govt.encouraged the use of drugs,liquor etc.The persons responsible will pay eventually for it.KARMA IS A DIRTY BITCH.

  • 4
    5

    Mithula,

    A clear presentation on the easy credit available in the North and the resulting debt trap. The access to easy credit to buy motorcycles and trishaws is another aspect of the problem.

    Dr.RN

    • 3
      5

      RN,
      Are these northerners forced to use “easy credit”? Is this “easy credit” exclusive to the north?

      • 2
        2

        @Eusense the nuisance you are one sad sack of potatoes. Do you want the easy credit too?

        Mithula, can you please arrange easy credit for our wonderful think tank Eusense?

    • 6
      2

      The diaspora can open up a Islamic style bank to help the Jaffna trader and then probably ease the pain on the people.

  • 4
    1

    It is not an issue of the lack of financial education, it is due to the introduction of neo-liberal economic principles to North after the end of the war. Neo-liberalism that has been in practice in the South since 1977 or more clearly since the 1990s has also produced the same outcome, indebtedness of workers, poor farmers, middle class etc. Financialization goes together with neo-liberalism. So the answer is breaking away from neo-liberal policy framework. The Northern PC may take the lead…although in a given limited space.

    • 3
      1

      SL,
      What would the separatist Tamils and Tamil diaspora say if this “easy credit” is not available to the citizens of the north but only to citizens of the south?

      • 2
        3

        Tax the more successful parts of the Island and give grants to the North to implement the Non-neo-liberal economic principles (traditional communal economic principles?). Very soon, the whole island will equalize. Best party to do it is the Neo-National-Socialist/Communist parties.

        • 2
          0

          Ramona says
          Tax the more successful parts of the Island and give grants to the North to implement the Non-neo-liberal economic principles (traditional communal economic principles?)

          In fact the previous government was spending more than 80% of its development budget on the North, and that was one reason why the Rajapaksas were thrown out by an irate Sinhala voter group.

          Meanwhile, the TNA has not done anything to win the confidence of even the Ranil-Maithree government. instead it has set of a series of mines against it, and even earned the wrath of the US government.

          The TNA has to either (i) build trust with the central government and work for the development of the North together with the center, OR (ii)it has to throw the gauntlet and follow a clear separatist path.

          At the moment it wants to follow a seemingly, loudly militant separatist path based on the Vaddukkoddai resolution, merging even the North and the east, while at the same time expecting the government to give it handouts.

          If we are to have self-determination, the best way to have it is by economic independence. So, just don’t depend on hand outs from Colombo, but get innovative instead of standing around just spending the available credit on tinsel, tri-shaws and empty style.

          • 1
            1

            Manoharan,

            Oh, I am very sure that once TNA merges the N&E, they will not want handouts from the central government. They’ll get it directly from Tamil Nadu. Economic independence for the N&E would mean their right to get loans and grants from especially Tamil Nadu.

            Current available credit on available credit on “tinsel, tri-shaws and empty style,” is the plot by TNA to laden the N&E with debt, thus forcing foreign interference with all kinds of aid packages.

            The N&E will soon be under obligation to the Tamil diaspora, Britain, and Norwegians et al. The South will be forced to take on the debt burden and thus pulling down the Island’s economy. The South will then readily give up the debt burdened N&E to the Separatists.

            Better to equalize and unite the Island with a greater socialist economy.

            • 1
              0

              Are you serious??

  • 2
    1

    A very good analysis. Perhaps the best remedy would be the revival of credit co-operatives and /or other organisations for the provision of cheaper credit. Bensen

  • 5
    3

    How is that Mithula, in many families in the North, the people living there own three to even four motor cycles per household. One for the father and mother, one for the daughter and if there is a son , one for him as well. The North is crowded with motor cycles ridden mainly by young women. Where does the indebtedness stands in the North. It is not due to credit facilities. There are only less than 10% who does not have the support of the relatives from far away land, suffer from want. The labour wages have gone up to Rs.1500/- per day and if it is a professional labour it goes up to Rs.2000/- to Rs.2500/-. The Jaffna man do not need a financial institution. He himself is a financial institution. Many double storied houses that are coming up in the North presently is not due financial bankruptcy. Look at a woman who wears more than 20 sovereigns of gold on her. The Tamils need political freedom and land ownership. That is what they are in need at the moment.

    Indebtedness is a worldwide phenomenon. In America, in Europe and even China there is indebtedness, bankruptcy and even beggars on the streets. Anyhow thank you for your article.

    • 2
      3

      Is that so?!!! Tax the North too, so the Government of Sri Lanka loans can be paid off – every gold hairpin and monocycle to be taxed!

      • 0
        2

        motorcycle*

      • 2
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        ramona therese fernando

        “every gold hairpin and monocycle to be taxed!”

        Very sensible economic idea, with the usual racist bent. How about those who don’t own gold hairpin or monocycle. Give them each a gold hairpin and a monocycle free of charge and then tax them.

        • 0
          4

          Native Vedda,

          Use your brains….taxes will be used for those who do not have gold hairpins and motorcycles. They will be given housing within enterprising-mode contexts (farming house, fishing house, forest house, industrial-site house), and education.

          Taxes will also be used to help set up credit-payment plans with little or no interest on loans, so people can pay off their loans soon(courtesy of the national government -South will suffer a bit…..but adequate taxation in the South will equalize things).

          • 2
            1

            ramona therese fernando

            “Use your brains…”

            I refused to use mine until you find yours.

    • 1
      2

      Sellam,
      I agree with most of what you have said, with one exception. There is widespread and endemic poverty in Jaffna, which is hidden from the eyes of the rest of Sri Lanka and the world, by the apparent glitter. This contributes to much of the social problems. These folk have to keep body and life together by what ever means. There are also people who prosper and satisfy their many wants by feeding on the poor. There are also the very poor among the poor.

      Unfortunately, the poor and the very poor acquire motor cycles and trishaws through loans from Finance Companies and private lenders, which they are unable to pay back. They also do not have the resources to maintain their vehicles.

      The war has distorted Jaffna and its value systems beyond recognition. There was never poverty and depravity on the scale it exists now.

      The lenders get their money or assets back come or other, leaving the borrowers worse off than they were before!

      DR.RN

    • 1
      1

      Sellam,

      I assume that you do not live in Jaffna. Correct?

      “How is that Mithula, in many families in the North, the people living there own three to even four motor cycles per household. One for the father and mother, one for the daughter and if there is a son , one for him as well. The North is crowded with motor cycles ridden mainly by young women.”

      Young women and young men. Many have actually borrowed the money, others received money from relatives abroad and government servants were provided these at a huge discount.

      “There are only less than 10% who does not have the support of the relatives from far away land, suffer from want.”

      Where did you find this 10% from?

      Too many in Jaffna rely on too few sending too little money from abroad. The ones who stay home have very high expectations because they do not know the reality.

      “The labour wages have gone up to Rs.1500/- per day and if it is a professional labour it goes up to Rs.2000/- to Rs.2500/-.”

      Maybe in Jaffna town and for a male. A female in the villagers receives 250 on a good day if there is work. There are 50000 widows often with several children and an elderly mother. How do they survive on 250 a day?

      “Many double storied houses that are coming up in the North presently is not due financial bankruptcy.”

      It might be a sign of housing loans or diaspora money to build a house and buy land. A two story house indicates lack of space=land.

      “The Tamils need political freedom and land ownership. That is what they are in need at the moment.”

      They? Are you not a Tamil? Political freedom and land ownership will not feed and educate us who remain in Jaffna. Diaspora money is almost never invested it is spent on consumer products.

      There is very little economic activity in Jaffna creating wealth.

    • 0
      0

      Political freedom will come automatically if economic freedom is achieved. Instead, the TNA-LTTE policies converted the The TNA leaders who are absentee landlords drove the people to a war against a a majority 10 times bigger than itself, decimated the people, and converted the Northern people into a deprived class dependent on handouts.

      The TNA is still trying to do it as it serves them best.

      The ITAK, TC, and then TULF, and now the TNA leaders, mostly lving in Colombo-7 talk of land – their personal land. If the land is liberated, it should be nationalized and distributed among the poor and NOT left in the hands of people living in Colombo 7, London, or New Jersy, LA or Sydney.

      See the article by Rasalingam:

      http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=36740

  • 0
    0

    Quite true in its essence. However, people should be careful about these ads and be circumspect when making their in their final decision as, most of these ads are deceptive and has a veiled threat behind them , finally, in the quality of the products. The people behind them have to somehow make the public buy their products if they need them or not. Otherwise how do they continue to live their new lavish lifestyles.

  • 0
    0

    I find this “easy credit” a happy headache to have. Normally it is the other way around very little credit and growth stagnation. Besides it is the SME (small and medium enterprises) that sustain any stable economy. They provide more jobs that MN (multi nationals). So let’s not throw the baby with the bathwater. Yes there should be better financial management knowledge pervading the entire NP. Not just for the borrower but also to the lender. It is foolish to think that Financial Institution would thrive when borrower goes bankrupt. In the long run Financial Institutions gain and thrive when the borrower does well.

    Optimistically I hope in the near future there will be more confidence in the future growth of NP and investment into SME will flow mainly from the Tamil diaspora. Soon bad days of MR and his cronies will only be a terrible dream we had. Stability will prevail and growth in the economy led by diaspora investment will be the envy of not only south but also south Asia as well!

  • 1
    1

    In the last 5/6yrs the North, esp Jaffna hasbecome flooded with Sinhala streethawkers with lodging available with army help. Sales in shops have fallen.
    Suicides among businessmen have increased. A few years ago Chairman of National Peace Council of Sri Lanka met Jaffna Chamber of Commerce and learnt the truth and reported on their website.

    • 0
      1

      Davidson Panabokke,

      “In the last 5/6yrs the North, esp Jaffna hasbecome flooded with Sinhala streethawkers with lodging available with army help. Sales in shops have fallen.”

      During the last years many of the big retail chains have arrived in Jaffna town and even in the main villages. They can offer low prices and long payment plans and thus force out Jaffna traders.

      This is capitalism not racism.

  • 1
    0

    Sellam seems like “ALL” jaffna people are so rich according to you. so who/why are they borrowing money and contributing to the rising debt levels in North

    • 1
      2

      New strategy by LTTE :Increase the debt burden in Jaffna with all kinds of superfluous borrowing (unnecessary motorcycles and gold in hair). Force foreign interference with all kinds of aid packages.

      The N&E will soon be under obligation to the Tamil diaspora, Britain, and Norwegians et al. The South will be forced to take on the debt burden and thus pulling down the Island’s economy. The South will then readily give up the debt burdened N&E to the Separatists.

      • 1
        0

        Don’t post comments without fundamental understanding about this topic. This situvation purely happened because of banks and financial institutions tried to optimize their short term goals…rather than long term strategic value creation. This is a type of credit bubble in this area and both state and private financial institutions are responsible for this stage.

      • 0
        0

        Ramona you are rambling and a little lost.

  • 1
    0

    Banks and financial institutions should responsible for this!!! Over lending, overstated borrowing power, creative credit appraisals and over valued collateral to achieve short term targets by these organizations has been significantly contributed to this situation. Ibelieve it’s too late to correct this situation now. financial institutions should focus on business advisory areas and also try to implement BASEL 3 accord at branch level in a proactive manner.

  • 1
    0

    Please be give respect to others and avoid racist comments.

    • 3
      1

      mathavan

      “Please be give respect to others and avoid racist comments.”

      I believe you are new to this forum also your above comment is aimed at ramona therese fernando.

      She lost her brain at her birth and yet to find out that human beings need brain to have reasoned discussion. On the other hand she thrives on brainless bigotry.

      Please bear with her.

  • 1
    1

    Thanks, yes I am new to this forum.

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