In the last five years, Sri Lanka’s economy has struggled greatly. From being one of the strongest markets in South Asia, it has since fallen from grace. Could fintech be the catalyst it needs to see a revival?
Back in 2012, Sri Lanka had the highest financial inclusion rate in South Asia with two-thirds of its population having access to formal financial accounts. In second place was Bangladesh, with just half the amount of accounts in Sri Lanka.
However, the country has since gone through a very turbulent time. In 2019, there were terrorist attacks that harmed the tourism industry, a major source of income. Furthermore, there were major tax cuts which further dampened much-needed government revenues. The following year, the breakout of the COVID-19 pandemic further diminished the amount of tourists visiting and spending in the country.
At the time, Sri Lanka had foreign reserves of just $4billion and in an attempt to lower the demand for dollars, the government brought in an overnight ban on imported fertilisers that forced farmers to go organic overnight.
This led to a series of protests, inflation soaring to one the highest in the world, and a foreign reserve crisis that impacted imports of basic essentials such as fuel. Eventually, President Gotabaya Rajapaksa resigned and left the country. Thousands of protesters ransacked the presidential palace.
A combination of corruption, mismanagement, and loans (for example from China) that Sri Lanka could not afford to pay were factors that have left the country in its current predicament.
Not all doom and gloom: fintech is on the horizon
Despite the outbreak of the pandemic, in 2020 the Central Bank of Sri Lanka (CBSL) launched its regulatory sandbox in an effort to boost its fintech sector and innovation. It was also exploring the idea of public input on the prospect and thoughts on open banking.
In 2021, the CBSL launched the country’s first National Financial Inclusion Strategy (NFIS) with the prime objective of facilitating more accessible, effective, efficient and affordable financial services for businesses and individuals. Currently, it is in its implementation phase with the collaboration of more than 20 key entities. It has the technical and financial assistance of the International Finance Corporation (IFC), which is a member of the World Bank Group.
Since these actions were taken, the fintech sector has continued to grow in Sri Lanka. In 2024, the CBSL announced that it was planning on introducing a central bank digital currency (CBDC) to the country. However, no official launch date was set and there has been little talk about it since the initial announcement.
Fintech adoption
Due to geographical barriers, limited financial literacy, income disparities, the high cost of borrowing and regulatory constraints, Sri Lanka still has a significant underbanked population. Despite having a significant proportion of the population with formal financial services accounts, the adoption of fintech has caused a massive uptake of financial offerings.
According to AB Magazine, mobile payment apps, digital wallets and peer-to-peer (P2P) payment platforms are examples of how the average Sri Lankan has been able to access a financial service. Payment solutions have made impacts in the country, with payment gateways introduced by companies such as DirectPay and PayHere.
Mobile payment applications like FriMi and Genie have also been making impacts in Sri Lanka. Customers can now make payments, pay bills and transfer funds via their smartphones. In addition, digital wallets and microfinance solutions, especially those targeting micro and small and medium enterprises (MSMEs) and poorer individuals have seen the likes of Payable make an impact in the country.
This has also seen partnerships across the board between fintechs and traditional financial institutions. For instance, just this past September, Temenos announced a partnership with Bahwan CyberTek to bring localised, ready-to-use banking solutions to six other countries in Asia in addition to Sri Lanka, speeding up digital transformation for financial institutions. By using cloud-native technology, the partnership aims to help financial institutions deploy new banking services faster, reduce costs, and lower risks.
Also, earlier this year, Indian fintech giant PhonePe launched its UPI services in Sri Lanka, enhancing cross-border fintech connectivity.
Traditional financial institutions are digitising
Fintechs aren’t the only ones impacting the financial services scene. Many commercial banks have also entered the digital arena with their own competitive applications. for tasks such as opening a savings account to take place online, ultimately embracing digital transformation in various ways.
There have been other efforts to orgniacally boost the sector in the wider financial ecosystem. This includes the creation of the Fintech Association of Sri Lanka (FASL). FASL is an independent, not-for-profit, and cross-industry organisation representing the Sri Lankan and global fintech community to support the development, innovation and investment in the fintech sector.
Despite Sri Lanka’s challenges, fintech could help further boost its wider economic development and hopefully reset it toward the path to prosperity.
