Financing the Grassroots

Krishan Thilakaratne provides insights into the supporting role played by local NBFIs

 Licensed finance and leasing companies – which comprise the non-banking financial institution (NBFI) sector – form an integral part of Sri Lanka’s financial services infrastructure.

The lacking presence of banks when it comes to financing the grassroots level is a gap that has been filled by NBFIs for years; and as a result, the latter has been supporting the financial needs of micro enterprises as well as the lower end of SMEs.

As the CEO of Commercial Leasing & Finance Krishan Thilakaratne explains, although the sector began by lending mainly for capital investments, they have shifted to financing working capital over time; and subsequently, business expansion in SMEs and micro enterprises.

He observes that “NBFIs provide personalised service and reliability, which is why there’s so much reliance at the bottom of the pyramid. The sector has partnered with SMEs from their inception to when they upscale into successful businesses. Non-banking financial institutions offer a helping hand and are the stepping stones for SMEs to move into the mainstream.”

NBFIs serve a critical role in bringing these entities into  the mainstream, and achieve this by offering flexibility, credit and easy access to finance through reduced paperwork and liberal credit policies for businesses without adequate collateral to help build their credit profiles.

Thilakaratne elaborates: “As more NBFIs are accessing international credit lines and development finance institutions, they have had to comply with green financing and environmentally-friendly lending practices, which benefits SMEs.”

Pricing remains the main drawback for the NBFI sector as it extends small ticket loans, which is an area that is generally overlooked by banks.

Furthermore, Thilakaratne points out that the sector has benefitted SMEs in crucial ways: “The presence of regulated non-banking financial institutions has kept micro enterprises and SMEs out of the clutches of informal moneylenders who charge exorbitant interest rates.”

“In addition, NBFIs have empowered women with financial independence. Most women who avail themselves of loans run home-based businesses to augment their family incomes and educate their children,” he adds.

Building on this, he explains how financial institutions have been able help these households: “Women play multiple roles and supporting them helps uplift entire families. In many instances, they need urgent access to funds, and NBFIs have been able to fulfil this need and supported their livelihoods.”

Finally, he believes that the sector’s most critical role has been in agriculture where it dominates in terms of extending financial support to the farming community by financing 90 percent of agri-equipment – including by way of leasing small commercial trucks to enable them to access the market for their produce.

In Thilakaratne’s view, the role of technology and fintech will cement this age-old bond between the grassroots level and NBFIs.