Best Management Practices in the Banking, Finance and Insurance Sector of Sri Lanka

Perera, Travis, Journal of Comparative International Management

This paper identifies and analyzes five best practices that were persistently present in the management of successful companies in the banking, financial and insurance sector in Sri Lanka.

INTRODUCTION

Although the Sri Lankan economy gained stability with a 6% GDP growth rate in 1997 and showed a declining rate of inflation, there were mixed signals for the financial industry. The delay in the implementation of large infrastructure development projects caused some concern. The monetary and fiscal policies of the government with bias towards low interest rates seemed favorable to promote investment. The effect of currency crisis in the Southeast and East Asian region has been to decrease investment in projects from that region in Sri Lanka. Yet high value added and quality producing customers of the sector were not so badly effected by this phenomenon. The past two decades showed growth in the industry in terms of institutions and services. Also, the focus of funding has recently shifted from large corporate customers to small and medium enterprises that form the key vehicle in the development strategy. Customers in these enterprises are from many segments and to serve them the sector needs to develop diverse products. The players in these segments thus need to be innovative. In this context, the sector is seen to emphasize corporate image, high brand values, and distribution networking. Increasing competition in the capital market and broadening of functions of commercial banks and financial institutions is experienced. This results in growing competition in the banking sector for lending opportunities. The division between development banking and retail banking is blurred and development banks increasingly redefine their role from re-financier to direct lender for small and medium industry projects, while retail banks finance high-risk customers.

All these trends indicate that the financial sector is growing increasingly customer-oriented, developing commitment in its employees, developing integrity to serve these needs and becoming increasingly socially committed. The successful players in this sector stand witness to these facts. This research identifies 5 best practices that were persistently present in the management of successful companies in this sector, which we would like to describe and name as: Lifetime Partnership with the Customer, Dedicating Skills to the Organization, Building Affective Commitment, Now before How, and Well Orchestrated Controls.

Ten organizations consisting of 3 developmental banks--Development Finance Corporation Bank (DFCC Bank), National Development Bank (NDB) and Vanik Incorporation Ltd.; 4 retail banks--Commercial Bank of Ceylon Ltd., Hatton National Bank (HNB), Sampath Bank, and Seylan Bank; 2 insurance companies--CTC Eagle Insurance Co. and Union Assurance and 1 leasing company--Lanka Orix Leasing Co. Ltd. (LOLC)--were chosen to be surveyed. All these organizations are within the top 50 companies as rated by Lanka Monthly Digest of December 1997 for the year 1996/97.

In-depth interviews with the Chief Executive Officers of these companies were conducted by a team of researchers of the Postgraduate Institute of Management. In order to get further insight into best practices identified by the researchers, further surveys were done by student teams. Interpretation of the findings and analysis was made on the basis of current theoretical perspectives of management and using the Balanced Scorecard format.

THE 5 BEST PRACTICES

BEST PRACTICE 1: Lifetime Partnership with the Customer

Studies on entrepreneurial growth in developing countries have shown that one of the main problems is the dearth of entrepreneurs in them, or rather the inability of locating them and energizing them into action. Such entrepreneurship often lies dormant in villages and untapped regions of the world. If so, capital which is the complement of entrepreneurship, needs to find way to these potential enterprises if economic development is to be fostered in a country. Naisbitt (1995) predicts the growth of villages into supercities and from nation states to networks among other megatrends. Smart financial companies would do well to tap resources by identifying, retaining and developing them into an effective partnership. There is evidence of this behaviour in our sample of financial companies.

Identifying Potential Growth Customers

HNBs' theme 'your partner in progress' is quite evident in its Gemi Pubuduwa scheme, considered its most successfully marketed financial product targeted at the rural segment through the concept of barefoot banking. The scheme is driven by the vision of elevating the quality of life of villagers through small enterprises achieving financial success. In pursuing this vision, commitment of the bank is built at the very inception by selecting animators from among the rural youth from target areas whose visions and aspirations are consonant with the aims of the scheme. These animators are trained accordingly in the method of barefoot banking by the bank and perform their task by liaising with opinion leaders such as the chief priest of the village and the Grama Sevaka or village headman. These animators virtually take the bank into homes by foot. HNB has been able to mobilize Rs. 640 Mn. in deposits and has advanced a sum of Rs. 700 Mn as at December 31, 1997 with a recovery rate of 97%. The scheme has become a major impact on the growth of the bank itself. It is an example of genuine concern for the people turned into a profitable relationship for both partners.

Potential resources in a village is seen when Seylan recently made to the general public an issue of 3,000,000 unsecured, redeemable five year debentures of Rs. 100 each. The issue was oversubscribed within a few hours of the opening on 30th September 1998. A further 3,000,000 debentures were issued and Rs. 600 Mn. was achieved by October 13, 1998, well before the closing date of October 29, 1998. The extraordinary feature of this was more than 90% of the subscriptions originated from places outside Colombo, as far as Dehiattakandiya. The success of the issue is attributable to Seylan being close to the customer even in far outposts.

Vanik's ventures go even further to the regions of SAARC, where its first overseas location in the region is Bangladesh. This is seen as an opportunity for Sri …

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Publication information: Article title: Best Management Practices in the Banking, Finance and Insurance Sector of Sri Lanka. Contributors: Perera, Travis - Author. Journal title: Journal of Comparative International Management. Volume: 2. Issue: 1 Publication date: June 1999. Page number: 51. © 2008 Management Futures. COPYRIGHT 1999 Gale Group.

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