FINANCE INSIGHTS

 Compiled by Yamini Sequeira

MARKET REALITY ALIGNMENT

Sanjeewa Bandaranayake urges NBFIs to adapt their models to evolving markets

The non-banking financial institutions (NBFIs) sector plays a vital role in providing essential services whereas conventional banks may impose stringent lending criteria including higher collateral demands.

Sanjeewa Bandaranayake says: “The NBFI sector primarily engages with the MSME (micro, small and medium enterprises) sector, effectively bridging the gap for individuals lacking access to traditional banking facilities. Our expertise lies in understanding and catering to the needs of these sectors without the conventional constraints typical of traditional banking.”

He highlights the sector’s resilience, noting that “despite the challenges posed by COVID-19 and subsequent disruptions, major players in the sector have demonstrated a remarkable recovery. As transport services resumed and societal needs reemerged, NBFIs were quick to respond.”

This positive trajectory was also reflected in the performance metrics of the NBFI sector over the past year.

“Collection ratios have improved and we’re witnessing a trend of increased lending activity. Our collection rates remain robust. We do not see signs of a crisis among MSMEs that we support at the bottom of the pyramid,” he states, underscoring the resilience of smaller enterprises in comparison to larger SMEs.

Bandaranayake acknowledges both short and long-term challenges, adding that “while we anticipate a modest economic growth of around four percent, the overarching health of the economy will dictate our trajectory.”

He is confident about the recovery of critical sectors such as construction and transportation, which are integral to societal functioning. And in terms of policy considerations, Bandaranayake articulates the need for a sustainable approach within the NBFI sector.

“There is a pressing need for supportive government policies to embrace sustainable practices, particularly in green transport. The drive towards sustainable financing is becoming increasingly prominent within the broader financial landscape – and the NBFI sector must adapt accordingly,” he urges.

On sustainable financing practices within the sector, he opines: “There is a strong impetus across the finance sector, including banks and regulatory bodies, to adopt more sustainable practices. So NBFIs need to reevaluate their business models in the light of evolving market demands and regulatory expectations.”

“The NBFI sector is not only navigating current challenges but also positioning itself for future growth and sustainability, underscoring the critical role it plays in fostering economic resilience and financial inclusivity in an ever-changing landscape,” he maintains.

Bandaranayake states: “While practices such as going paperless are being adopted, the challenge lies in redefining our business models.” And he highlights the potential of financing avenues such as green bonds but points to the current limitations in identifying viable investment opportunities.

“Our business model is heavily reliant on commercial vehicles, which are not typically aligned with renewable energy initiatives. But our vision is for diversification away from vehicle leasing towards more sustainable financing options, recognising that diversification is always beneficial,” he explains.

However, Bandaranayake cautions that progress in this area varies significantly across the sector.

When discussing potential areas for growth, he remarks on the need for companies to enhance their competencies and capacity building: “Each organisation has the potential to explore different avenues but the challenge often lies in the know-how required to navigate new sectors.”

“This underscores the necessity for NBFIs to invest in knowledge and skills development to successfully enter untapped markets,” Bandaranayake asserts.

Despite the fluid landscape, he does not perceive any overwhelming and immediate challenges within the sector: “As long as the economy stabilises and activity resumes, there will be ample opportunities for growth.”

“However, it is important to acknowledge the ongoing challenge of human capital, particularly in the NBFI sector. The informal sector demands a unique approach that requires experience, as there is no structured methodology to address its complexities,” he explains.

Bandaranayake alludes to a stabilisation of attrition rates, saying: “While there was significant migration previously, we are now witnessing a more stable environment for non-attrition.”

Digitalisation remains a critical focus for the NBFI sector.

“The banking sector has made considerable strides in digital transactions and we recognise the importance of enhancing our own digital capabilities. Although internal digitalisation efforts have progressed, promoting these capabilities among clients, particularly in the informal sector, is essential,” he adds.

Bandaranayake offers several recommendations to accelerate economic recovery. “Investments in the construction industry are vital, as government spending on projects typically stimulates demand for vehicle leasing,” he avers.

He also emphasises the potential for modernisation in the transport sector, particularly as imports resume, which could invigorate the growth of NBFIs.

When discussing female entrepreneurship, he acknowledges the strides made by the sector, particularly in microfinance: “Our model often involves forming groups of women, facilitating lending and encouraging economic activity. While there are successful initiatives in this sphere, comprehensive statistics on the overall impact are lacking.”

And Bandaranayake points out that understanding the unique needs of these businesses is crucial.

“Many small producers possess the skills to create products but struggle to find appropriate markets. For example, local producers may not have direct access to profitable markets, particularly in urban areas such as Colombo,” he adds.

Emphasising the importance of bridging the gap between producers and markets, which can be a major barrier to scaling up, he asserts: “It’s essential for businesses to identify where their products can be sold, especially in niche markets.”

Bandaranayake shares some key pillars for building up small businesses and supporting female entrepreneurs: “Market access initiatives can create platforms that connect producers with potential buyers both locally and internationally, while qua­lity assurance programmes establish standardisation and quality assurance processes help local products meet international market requirements.”

He cites capacity building – namely providing training to small business owners on market dynamics, production techniques and marketing strategies – as key pillars for growth.

“Partnerships between NBFIs and small producers should be encouraged, to enhance financial literacy and access to capital,” he notes.

Looking at the year ahead, Bandaranayake says: “I feel a sense of optimism for the NBFI sector and broader economy. With projections indicating a GDP growth of 4.5 percent, we are on a recovery path.”

“I’m confident about the future and that the NBFI landscape offers ample opportunities for diverse players to thrive, particularly in serving the needs of the informal market,” he concludes.

The interviewee is the Chief Executive Officer and General Manager of People’s Leasing & Finance.