what policies make a country successful• digital retail payment platform in northern sri lanka by...

What policies make a country successful

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Policies, interventions required in 5 key areas

Financial and digital infrastructure readiness 1

Fostering Innovation2

Capital Market Maturity

Financial Inclusion & Reach

Robust Risk Management

3

4

5

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SL can improve on ease of doing business, getting credit

SL Ranks low on ease of doing

business….

Source: World Bank Database, WB Doing business reports

Thailand

100

27

IndiaAustralia China Sri Lanka

18

46

77

22

China

73

Australia India

8

Thailand Sri Lanka

44

124

… and on ease of doing credit

Infra. readiness (incl. Digital)1

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Aadhaar>1 Bn IDs

Mobile>1 Bn devices

Jan Dhan330 Mn

accounts1

Participate from

AnywhereDigital identity

Authentication API Aadhaar e-KYC

150 Mn in 3 yrs

Inter-operable

interface

Unified Payment

Interface (UPI)

30+ banks

e-Sign

1 Mn+ signs

Digital Locker

3.7 Mn Docs

Data secure;

consent driven

Aadhaar Payment

Bridge

300+ Bn in 3 yrs

Aadhaar Enabled

Payment System

40+ banks OTP/Biometric

Consent

Individual

Data

ProviderBanks

APIs

Consent layerCashless layerPaperless layerPresence-less

layerBase elements

1. FY18. Other numbers are till FY17Source: Press Search

Transformative digital infrastructure (India stack)


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Series of digital innovation in India

Source: India Stack website, ispirt presentation

2012 201420112010

Aadhaar

Authentication

Aadhaar

eKYC

AEPS,

APBS

Jan Dhan

scheme

Payment

bank

Digi-locker UPISFB

Demoneti-

zation

GST peer to

peer

lending

'Other

Financial

Services'

e-SignAggregator

NBFC

On-tap

universal bank

licenses

2015 2016


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Large scale digital innovation in China by BAT(Baidu , Alibaba, Tencent)

Source: Press Search


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6

$100 Bn invested in Fintechsglobally

Fintech are attacking every part of the value chain

Source: Tracxn data, Data as of Nov-16, BCG Analysis

Payments240

Lending/

Crowd funding

220Investments/

Insurance

175Planning

135

65Data and

analytics

Security35

Block chain

15


7

Globally many examples emerging of mutually beneficial partnerships between banks and fintechs

TAT reduction – 2

weeks to few hours

• Access to

customers

Instant loans to

customers

• Access to

customers

• Additional data to

improve models

Loans up to

GBP 100,000

Serving 4 M SME

customers

Access to underserved

borrowers – low to moderate

income family

Book build of USD

150M

• Access to capital

to gain / retain

customers

All BBVA compass

customers

TAT for payments to

seconds from 2-5

business days

• Access to customers

• Open APIs to enable

BBVA users to create

custom applications


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Sri Lanka Capital markets are at early stages of evolution

Low stock market

penetration Higher transaction costs Low foreign investments

71

90

22

0

130

IndiaAustralia

Market cap to GDP1 (%)

China

114

Sri Lanka

0.30

0.82

0

1

0.28

Sri LankaMalaysia

Transaction cost (%)

AustraliaIndia

0.301.5

1.2

0.8

1.5

0.0

3.0

4.5

IndiaMalaysia

FDI/GDP (%)

China Sri Lanka

4.0

1. Colombo Stock ExchangeSource: Press searches; ABD report on sri lanka capital market; BCG analysis

Capital Market Maturity3

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9

Capital Market Maturity3

Authentic, fast information

Stability and consistency in laws & policies

Ease of contract enforcement

Ability to Hedge Risk

1

2

3

4

Key success factors for development of Capital Markets

Resultant benefits

Low cost of transaction

Ability to price risk and return

High Liquidity

Diverse investor profileFII, DII and Retail

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SL is behind peers on penetration/reach of services

100

80 80 8274

130

0

Account Penetration (%)

Australia China ThailandIndia Sri Lanka

100

0

60

20

40

80

Malaysia

35%

% of adults covered by bureau

India Sri Lanka

18%

China Indonesia

83%

44%

21%

Source: World bank Findex – 2017

Financial Inclusion & Reach4

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Intervention and policy can help ensure financial reach to all parts of society (e.g. India)

Government interventions for financial inclusion

• Basic Savings Account (PMJDY)

• Micro finance to SMEs(Mudra), farmers (KCC)

• Insurance & Pension schemes: Pradhan Mantri Suraksha

Bima Yojna, Pradhan Mantri Jeevan Jyoti Bhima Yojna

• Start-up India

• Venture capital Scheme

Source: MFIN, Press Search, BCG Analysis

… led to significant boost to reach of services

80% account penetration

330 million PMJDY Accounts (in less than 5 years)

75%+ PMJDY accounts with Rupay Cards and digital

banking facilities

~10.5 lakh crores of lending to agri sector

~5.5 lakh cores to women entrepreneurs (mudhra)

~3.2 Cr enrolments in PM Jeevan Jyoti Bhima Yojn

Financial Inclusion & Reach4

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Regulatory action is typically along three main clusters for robust risk management

Financial stability

Basel IV with impact on

capital ratios, TRIM with

strong focus on internal

models

Prudent operations

Cumulative penalties

rose to $345B—strict

penalization continues

Resolution

Resolution remains least

developed area of reform

Source: BCG

Risk Management Policies5

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13

Globally financial regulators are focusing on enhanced preparedness levels for handling banking crisis and systemic risk assessment capabilities

Assessment of European bank regulator's preparedness,

of structure, tools and capacity to handle banking crisis

Reorganization of the central bank to create an agile

organization structure and operating model with focus

on financial stability department

Developed crisis management framework with

identifying crisis scenario, impact and suggested course

of action

Re-design of a financial regulator's operation model and

resource structuring with focus on systemic risk

assessment

Transformation of banking supervision including design

of Supervision framework, organization structure,

people development agenda and IT


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rved.Prudential

regulation

Systemic

risk

surveillance

Institutional

risk

supervision

One approach to improved systemic risk management is to ensure a constant macro-micro feedback loop

Systemic surveillance

• Aggregate data from banks

• Market indicators

– Prices

– Risk premia

• Macroeconomic data

2

Bank level risk analysis

• Data collection from

individual institutions

• CAMELS rating

• Quantitative stress testing

• Risk factor benchmarking

1

Targeted regulation based on banks' contribution to systemic risks

• Prudential rules

– Capitalization

– Leverage

– Liquidity buffers

• Risk mitigation

programs

3


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SL has taken several steps… good participation from

membersGovernment nurturing digital ecosystem…

Launch of

multiple Mobile

Banking Apps

with range of

functionalities

Dialog

Mobile Wallet

• National Digital Identity (NDI)

– e-KYC

– Transaction authorization

– 38% completed (on hold)1

• National Payments Platform for enabling mobile payments

• Digital Retail Payment Platform in Northern Sri Lanka by Dialog

Axiata PLC, Australian govt.

• Lanka Government network - Connect all government offices

electronically

• Comprehensive Digital Development Strategy

• Fintech Sandbox is being evaluated

• Proof of concepts being tested on blockchain

Source: Press Search, BCG Analysis

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In summary: Concerted interventions on five dimension can accelerate financial development of Sri Lanka

Financial and digital infrastructure readiness 1


Capital Market Maturity

Financial Inclusion &

Robust Risk Management

3

4

5

17

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