Lack of financial literacy cause for exploitation

by Lalin FERNANDOPULLE

“The purchasing power has declined due to people’s dependence on traditional banking systems which are exploiting them”, said Executive Director, Wealth Trust Corporation, Mangala Boyagoda.

He said banks should offer depositors a return higher than the inflation in the country.Bank interest rates should be above the current inflation for people to make profitable gains and thus increase their purchasing power.

Bank interest rates last year on savings were between six to seven percent while FDs ranged from 15-18 percent when inflation shot above 28 percent, recording the highest in the region. Capital markets cannot grow with a banking system that offers interest lower than the inflation.

“People deposited in Sakvithi and the Golden Key because they wanted a return higher than the inflation. People remain poor because of unfair rewards offered by banks”, he said.

“Banks are running on people’s deposits due to the ignorance of the saver.

The hard earned money of depositors is invested in Treasury Bills at higher interest rates and in return they are offered petty interest”, Boyagoda said.

The bank interest rate in USA is higher than the inflation in the country. The interest rate will be two percent if the inflation is one percent. He said the purchasing power of people has declined due to lack of investment knowledge. Though Sri Lanka has a high literacy rate financial literacy is low.

“Depositors should move out from the traditional banking system and explore secured investments that offer returns higher than the inflation”, he said.

Investors should consider credit risk, liquidity and the interest in making an investment choice. Higher the return higher the risk. Treasury Bills offers higher returns with the least risk.

People could purchase Treasury Bills from primary dealers which comprise five non banking institutions and four banking institutions. Boyagoda said the bank deposit rate and lending rate in Sri Lanka which is the intermediary cost is the highest in the region. Awareness on disintermediary markets which are popularly known as capital markets is vital to build a healthy investment environment in the country.