Compiled by Yamini Sequeira

RISING ABOVE CHALLENGES

Janaka Kumarasinghe believes NBFIs play a key role in economic growth

Q: What do you see as the main challenges facing the non-banking financial institution (NBFI) sector in Sri Lanka?

A: The sector is grappling with several challenges, the most pressing being market stagnation, which has persis­ted since the 2019 Easter Sunday attacks.

This stagnation has hindered stabilisation, resulting in fierce competition among over 30 finance companies and more than 20 banks, all vying for a limited market share.

Compounding this challenge is the fact that banks generally benefit from lower funding costs and greater consumer trust, thereby intensifying the competitive landscape.

Additionally, human resources pose a major hurdle. High turnover rates – driven by migration and other factors – have led to the loss of skilled professionals, making it challenging for NBFIs to sustain a competent workforce.

Q: And what is your evaluation of the performance of NBFIs in 2024?

A: NBFIs play a crucial role in the economy by servicing segments often overlooked by traditional banks, providing vital support to underbanked communities. They enable these communities to access capital and engage in business activities, which is essential for economic growth.

The performance of NBFIs in 2024 was mixed, primarily due to a cautious lending environment following recent uncertainties.

However, we are witnessing a positive shift as GDP growth transitions from negative to positive. The formation of a new government has instilled hope among stakeholders although uncertainties surrounding geopolitical tensions and evolving policy directions remain.

While the current regulatory framework is effective at maintaining stability, consolidation within the sector could be beneficial. Fewer players could lead to healthier competition, enabling NBFIs to focus on key sectors such as tourism, IT, agriculture and fisheries, thereby facilitating targeted growth.

Additionally, learning from digital transformation strategies employed in countries like India could provide valuable insights for enhancing growth and efficiency in Sri Lanka’s NBFI sector.

Q: How has the ban on vehicle imports affected NBFIs, in your assessment?

A: This has greatly impacted NBFIs, which have historically relied heavily on vehicle financing. In response, companies are now pivoting to financing used vehicles.

While the timeline for lifting the ban remains uncertain, there is a growing trend towards financing locally value added and electric vehicles, contingent upon government policies.

This shift presents both challenges and opportunities, as NBFIs must adapt to evolving market demands while aligning with national sustainability goals.

Q: Do you believe that increased investment is needed in employee training and development?

A: There is a critical need for increased investment in both staff training and broader financial literacy initiatives within the market.

While the finance sector remains an attractive career choice, today’s youth are increasingly drawn to alternative fields – particularly technology. This shift presents a challenge in recruitment especially in sales roles, where enthusiasm may be waning.

Investing in comprehensive training programmes can help develop a skilled workforce capable of meeting the sector’s evolving demands. Moreover, promoting financial literacy in the community can lead to a more informed customer base, benefitting the entire financial ecosystem.

The use of videos and discussion forums, and the efforts of the Finance Houses Association of Sri Lanka (FHA) and Sri Lanka Institute of Credit Management (SLICM), can play greater roles in this area.

Q: How would you describe the gender balance in the NBFI sector?

A: The NBFI sector currently exhibits a gender imbalance although there’s a noticeable increase in female participation, which is encouraging. To further improve gender balance, targeted policies promoting gender equality in recruitment and development are essential.

Creating a dedicated fund for human resource development, similar to Singapore and Malaysia, could provide the necessary resources for training and developing talent across the sector.

Such initiatives would not only promote gender balance but also enhance overall workforce competency.

Q: What role will technology and digitalisation play in the sector’s future?

A: Technology and digitalisation are poised to play transformative roles in the NBFI sector, enhancing operational efficiency, transparency and productivity. While adopting technological advancements however, it’s crucial to remain vigilant about cybersecurity threats.

Although the long-term benefits of tech investments can be significant, smaller organisations often struggle to manage the associated costs.

Q: In your view, what emerging trends in finance and investment can NBFIs capitalise on?

A: NBFIs have opportunities to tap into emerging trends, particularly in renewable energy and innovative agricultural practices. Supporting entrepreneurs in these sectors can yield noteworthy benefits and drive economic growth.

Additionally, there has been a noticeable increase in lending applications from women, reflecting a positive trend in female empowerment in the finance sector. This demographic shift presents an opportunity for NBFIs to tailor products and services to better serve this growing customer base.

Fostering sustainable finance is crucial to stimulate the SME sector to bolster non-banking financial institutions. As small and medium-size enterprises grow, they can become vital partners for NBFIs, creating mutual business opportunities. With a new government in place, there is optimism for positive changes ahead.

The interviewee is a Non-Executive Director of a finance company and visiting lecturer at the University of Moratuwa.