“The biggest challenge faced by the development finance sector related to changes that took place due to the pandemic,” said Alastair Corera – the Chairman of Citizens Development Business Finance – as he described the sector’s performance over the last year.

In his view, the outbreak forced everyone to “innovate on their feet,” which he believes has been the main focus of those looking to mitigate the effects of the crisis.

However, Corera noted that there were positives too: “When we realised the normal ways of conducting business didn’t work, other plans that were in the making but not pushed were accelerated.”

He also pointed out that the technological advancement that occurred would have taken place over many years if not for the COVID-19 pandemic.

Commenting on the critical governance issues faced by the financial services industry, Corera highlighted the role of non-banking financial institutions (NBFIs), which serve an important yet smaller customer base in terms of ticket size: “While around 40 companies are regulated by the Central Bank of Sri Lanka, other agents providing similar services may not be, which authorities are looking into.”

“Among regulated companies, about 80 percent of assets are accounted for by 15 or so,” he stated, explaining that this is challenging for others in the sector. For example, he shed light on the need to recognise inevitable costs such as those associated with technology, which could mean investing in these ventures is impractical for smaller players.

Additionally, Corera cited the importance of being cognisant of the cost of funding or an entity’s capacity to lend: “The smaller the organisation, the harder it is to access cheaper sources of funding. As a result, those smaller players may be forced to enter ventures that are generally riskier than the norm.”

As such, businesses looking to meet customer requirements while operating in riskier market segments may take chances that should be avoided, which can lead to governance issues.

When it comes to Sri Lanka’s financial literacy and inclusion, Corera believes that the country is moving forward since “progress is viewed as an ongoing process.” In his view, technology and digital banking offer more opportunities to improve financial inclusion.

“I believe that significant acceleration is around the corner, even if it is piecemeal,” he opined, explaining that the increase in mobile penetration will enable players that look to provide financial services online to access sophisticated and convenient systems.

Corera continued: “Over the years, we have seen attempts by NBFIs to introduce unique innovations and new ways to provide services that are generally delivered by regulated financial institutions. However, the progress that could be achieved may have been deterred due to their non-regulated status.”

The outcome of this has been the regulator identifying the need to open avenues facilitating these organisations, which has enabled businesses such as fintech companies to trial products on financial services platforms.

“Going forward, these organisations will probably join forces with banks or some may grow large enough to become sizable players in the financial services market, which will lead to inclusivity,” Corera asserted.

As for competition among NBFIs, he perceives it as being “very intense” while adding that stricter guidelines have been imposed for these businesses when compared to the banking sector.

The result is that avenues for competition may be restricted in terms of pricing among other factors, leading to a focus on service, types of products offered and convenience etc.

In his concluding remarks, Corera also noted that competition has been intensified with banks engaging in leasing services, which were previously the sole purview of NBFIs: “Banks can also access cheaper funding so we must compete based on not only rates but other services and convenience.”