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Reaching the Poor Clients of Sri Lanka – People’s Bank Pawning and Savings Centers

This paper begins with an introduction to the pawning business and notes that pawn brokering services differs from other secured lending in that the lender takes physical possession of the collateral at the time of lending. Pawn broking also differs from most bank lending in that it is generally characterised by a high volume of small size advances, made for a relatively short period of time. A credit evaluation of the borrower is not required, nor is the loan monitored. If the amount is not repaid when it is due, the pawnbroker can recover the advance by auctioning the collateral. Therefore, credit risk and associated recovery costs are largely avoided.

The People’s Bank Act created the People’s Bank (PB) of Sri Lanka in 1961 as a state-owned institution. The bank was set up to develop the rural economy of Sri Lanka, and was allowed to conduct all types of banking business, including pawn brokering, which the bank started within the same year. Until 1961 private pawnbrokers were the only ones allowed to conduct pawn brokering, as regulated by the Pawn Brokers Ordinance No. 30 of 1942. Pawning has only increased substantially as a banking activity since 1995, as other types of lending have decreased. PB took a different approach as regards savings. Right from the outset, PB promoted micro-savings through products that appeal to poor clients, such as a low minimum balance and no restrictions on the number of transactions allowed.

This paper presents an interesting walk through the of the People’s Bank of Sri Lanka’s pawning and savings centers that have led to increased outreach of financial services to the rural economy. In particular, the paper covers the following topics:

  • History of the People’s Bank and the pawning business
  • Organisation and Operations
  • Products offered at PSCs
  • Customers and their needs
  • Competition and Marketing
  • Performance and Profitability
  • The Relevance of PSC to the bank and its customers

The paper concludes with the view that by gaining access to saving facilities and pawn loans, poor clients learn how to use banks and understand their requirements. This will help them in the future when it comes to more sophisticated products. It results in decreasing barriers between a formal bank and poor clients, part of the population still believed by many banks to be unbankable.

  • Resource type
  • Author Grashof, L
  • Organisation
  • Year of Publication2002
  • Region
  • Country
  • LanguageEnglish
  • Number of pages11 pp.

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