E-BANKING FOR THE POOR: A CASE STUDY OF SRI LANKA Sirimevan S. Colombage Professor of Social Studies The Open University of Sri Lanka Research project funded by the Institute for Money, Technology and Financial Inclusion, University of California, Irvine

2 Country Fact Sheet Area 65,610 sq. km. Population 20 mn. Population growth 1% Per capita GNP $ 2,000 (Lower middle- income country) HDI (Medium Human Development) : (South Asia 0.56): Ranked 104 th among 179 countries Life expectancy: males 72 years, females 77 years Literacy rate 91% Computer literacy rate 40% Banking density: 10 branches per 100,000 persons 8 ATMs per 100,000 persons 4,600 credit cards per 100,000 persons 17 fixed phones per 100 persons 60 mobile phones per 100 persons 12 Internet & users per 1,000 persons

3 Major objectives of the study To ascertain: how the poorest people earn, spend, store and save money; how mobile banking (m-banking) influences these practices; perceptions of the poorest on the use of money and modern technology-based banking; potential for expansion of communication technology for the benefit of the poorest; and policy actions needed to enhance financial inclusion.

4 The work completed so far... Literature survey Qualitative survey: focus group discussions, in-depth interviews Discussions with banking & microfinance institutions Quantitative survey; 550 out of 1,000 households surveyed & data processed (20 districts covered)

5 Composition of retail payments systems

6 E-banking recently offered by commercial banks Online internet (virtual) banking: –balance inquiry, check status, stop payments, bill payments, inward remittances and fund transfers. –Internet banking customers can also access from anywhere in the world on mobile phones. Most of the internet banking services can now be accessed through mobile phones. The use of mobile telephones is rapidly growing in Sri Lanka.

7 Source: Household Survey on E-Money conducted by the author, 2009

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9 Source: ADB Key Indicators, 2009

10 Regional disparities in t’phone ownership Source: Department of Census & Statistics

11 Source: Household Survey on E-Money conducted by the author, 2009

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15 Savings among the poor Low savings due to low incomes Debt trap Keep minimum deposits in banks to obtain a loan, but not to build up the asset base Diminishing savings culture partly due to negative real interest rates No use of e-banking due to low financial operations Lack of knowledge about e-banking common Security concerns also limit e-banking

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17 Two segments which have vast potential to apply e-banking, but untapped... Microfinance industry –Hundreds of MFIs based on community groups –Outreach –44% of households surveyed are members of MFIs –E-banking not applied Inward remittance market –1.6 mn. Sri Lankan migrant workers, mainly in Middle East –Annual remittances over $ 2.5 bn. –Mainly remitted through banks, but informal market is around 40% –E-remittances introduced by banks, picking up

18 Conclusion Use of e-money & m-banking is low at present Vast potential to develop e-banking –Rapidly growing m-phony infrastructure –Cheaper usage cost of m-phones –High literacy rates –Microfinance reaching the poor –Remittance market Action needed –Awareness programs –Application of e-banking in major MFIs

19 Research procedures to be conducted... A few more focus group discussions & case studies Collected quantitative data are being tabulated & analyzed Survey is in progress Preliminary version of final report by January 2010 Submission of final report by April 2010