Millionaires are the biggest loan defaulters in Lanka

By Gamini Warushamana

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The biggest loan defaulters in Sri Lanka are the rich millionaires in Colombo and not the poor peasants in rural areas. The Bank of Ceylon (BoC) does not ask farmers to mortgage their land as collateral to obtain agricultural loans and there are other ways we ensure the security of loans, said BoC Chairman Dr. Gamini Wickramasinghe.

Dr. Wickramasinghe was addressing an international seminar on micro finance on “Bank linkages in enhancing access to rural finance in Sri Lanka organised by the World Bank in collaboration with the Gemidiriya Foundation.

In agricultural insurance we are strict on crop insurance and the loans are released on a personal or collective guarantee of small groups. In the event of any crop destruction, the farmer gets compensation from the Agriculture Insurance Board and the bank is flexible to restructure the loan.

However, of the 1.2 million farmers in the country only 50,000 make use of the financial assistance provided by banks under the new comprehensive rural credit scheme where the interest rate is 8%.

Around 96% of the farmers still depend on the informal financial sector where money lenders charge 6% - 15% interest per month, he said.

Representatives from African countries said that the main issue in rural finance schemes in their countries is collateral.

In response Dr. Wickramasinghe said that various factors contribute to the success of rural finance schemes in Sri Lanka and low default rates.

High literacy rate, awareness programs on educational workshops, newspaper articles, TV and radio programs as well as ethics and values promoted by banks on the banking and credit system have contributed to its success.

We have also focused on promoting subjects such as banking, insurance and capital markets, he said.

The BoC’s over 30 years’ experience has also contributed to the success of our rural finance projects. The BoC, a rural bank has 304 branches. We know the realities of suburban and rural life. At present the BoC implements around 35 special credit schemes to meet the financial needs of the varied rural communities, he said.

Dr. Wickramasinghe said that the Gemidiriya micro finance scheme is highly successful and the 98% recovery rate is the highest in the country. The highly participatory decision making process has led to better targeting of the poor. It has improved governance, transparency and accountability at village level.

The BoC is closely associated with the Gemidiriya and provides financial assistance to village organisations and small groups with good track records in loan repayment.

The BoC issued loans recently to selected members of Gemidiriya village organisations in the Badulla district to purchase paddy.

This led to an increase in prices in the open market, for paddy in the area and the farmers benefited.

The Gemidiriya People’s companies encouraged businesses and the paddy was sold to women in villages to produce rice, and they earned profits by value addition. More than 90% of the Gemidiriya village groups maintain their accounts with BoC branches, he said.