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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)
Infra. readiness (incl. Digital)1
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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
Infra. readiness (incl. Digital)1
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Large scale digital innovation in China by BAT(Baidu , Alibaba, Tencent)
Source: Press Search
Fostering Innovation2
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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
Fostering Innovation2
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
Fostering Innovation2
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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
Risk Management Policies5
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All r
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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
Risk Management Policies5
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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
Fostering Innovation2
Capital Market Maturity
Financial Inclusion &
Robust Risk Management
3
4
5
17
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