Distinguished Members of the Association of Professional Bankers in Sri Lanka. Thank you for inviting me to this 31st Anniversary Convention. It is a great honor for me to be here and to have the opportunity to share a few remarks around “disruptive change” in the development context.
"Suba Sandiyawak", "Maalai Vanakkam", "Good evening!"
Let me start by acknowledging that how a person looks at change, and whether they think it is disruptive or not, is likely to be influenced by whether they are the cause of the disruption or at the receiving end. What is true though is, as the old saying goes, change is inevitable.
The natural progression of my speech should therefore be a definition of disruptive change. But before I define it, let me caution us all on dwelling too long on meanings, and whether a definition is correct or not. Change will not wait for us to define it – it will happen anyway.
When I was writing this speech, I was reminded of a report I once worked on, along with a few others, on the impacts of climate change in the Pacific Islands. Recognize that this report was being prepared in 2006 when the debates between climate variability, weather, and climate change were vigorous. It was an important debate, but it did not halt climate change in its tracks. I am sure we all have fresh memories of what happened in the Dominican Republic earlier this year. People living there don’t care much about a precise definition of climate change. They understand it first-hand.
So, back to the general definition of disruptive change. Disruptive change often refers to one or several game-changing trends that could fundamentally impact – positively or negatively - the way we live, do business, or engage in and with society.
From the World Bank’s perspective, this broad definition includes all emerging topics that could significantly impact the development of our client countries. This could be about a global financial crisis, regional or national conflicts, climate change, shifts in skills to match -- say IT, down to the way farmers share information about changes in weather, planting and harvesting seasons. In the banking industry, disruptive change could be caused by new regulations, changes in consumer preferences, or the introduction of new technologies.
For the World Bank, regardless of the nature of disruptions, the resultant changes require us to think out-of-the-box to ensure sustainable development. We try to anticipate potential problems using rigorous evidence-based analyses that maximize the economic and social benefits of the change in question, while mitigating the risks. Please note that there is no one formula for success, and options must be carefully weighed, while maintaining some flexibility to allow for course correction as and when needed.
A good example of disruptive change that is being experienced the world over is one I mentioned earlier - climate change. While the debate on the severity of the impacts rages, there is more evidence that something drastic is happening and unless we build resilience, mitigate the impacts, adapt, and in some cases abandon areas we have come to call home, our very existence is threatened. New pathways to sustainable growth must be created – and created fast.
It has become starkly clear that the risk is high, and it can get much worse. But more importantly, while those who have been experiencing the impacts of climate change for some time - the small island states for instance - have felt frustrated that they are not being heard, let me say that the world is now taking notice. There is understanding that this change will affect everyone eventually. Living on the highest piece of land is no longer enough.
What’s more interesting though, at least to me, is who is generating the most impact in raising this issue to the forefront. Not scientists and not development agencies but it is the children who have understood that this disruptive change will matter more for them than for our generation. The point I am trying to illustrate is that while definitions, evidence and precision are important to good decision making, they should not stop us from acting. There is no one precise time to act – instead we must be observant, nimble and open to that which is unfamiliar to us.
In the sphere of development, responding to climate change and its impacts is a shared responsibility. National authorities, international organizations, the private sector, and citizens must all come together to design feasible solutions. The transition towards a green economy also needs to be private sector-led. But the private sector requires enabling regulation, policies and access to reasonably-priced financing. To that end, I would like to acknowledge the Central Bank of Sri Lanka’s leadership in the country’s green transition. The World Bank Group, through the International Finance Corporation (IFC), has been supporting this initiative. For their part, the private sector will now need to embrace the roadmap and make it a reality.
Another disruptive change that I would like to focus on is the digital transformation. The World Bank, together with its client countries, is seeking to better understand how it can leverage this digital transformation to accelerate development in its client nations. By embracing these changes, countries can create a unique opportunity to leapfrog into higher levels of economic development. A good example is the transformation in connectivity. As people gain better access to the internet and mobile phones, they improve the efficiency with which they lead their daily lives. For some families in Sri Lanka, especially those living in remote areas, this has reduced and/or even eliminated the time taken to travel to banks to collect payments, pensions etc. And in this part of the world, particularly, it has helped them collect remittances which are a life line for many.
For the parents in the room, particularly of teenagers, you will relate to the next example. Many young adults today don’t go to shops, they buy online; and many couldn’t post a letter to save their lives as everything is on their smart phones and laptops. Shops have taken note and they are adapting - renting smaller walk-in premises while increasing warehousing spaces.
How far will technology go? Your guess is as good as mine. Some say we are approaching the Fourth Industrial Revolution where technology will alter the way we live and work. With disruptive technologies moving at the pace at which we are seeing today, there is no doubt that the jobs of tomorrow will be different. You in this room are the leading bankers in Sri Lanka today – do you know what skills you will need to do your job in the next 5 to 10 years? What I can comfortably say is that if this debate is not taking place in your HR and business offices, and you plan to continue to do business as usual, you may find that your profit margins are affected.
If we are to provide youth with the jobs of the 21st century, we must invest in our human capital. Let me zoom in on Sri Lanka. Sri Lanka has made significant progress in its development indicators, often outstripping other South Asian countries – in 2018, it ranked 76th in the Human Development Index. However, according to the World Bank’s recent Human Capital report, Sri Lanka performs only moderately well globally, with an overall score of 58 percent, and a ranking of 74 out of the 157 countries included in the Index. In other words, if current education and health conditions persist, a child born in Sri Lanka today will be a little more than half as productive (58% as productive) as she or he could have been if they had the benefit of a complete education and enjoyed full health. The report also notes that 13 years of schooling in Sri Lanka is equivalent to what a child in Singapore would complete in 8 years. Ladies and gentlemen, its no longer just the job of the teachers to get our children ready for the future. The world is changing fast, and we need to band together to help the next generation respond to the challenges they are likely to face – challenges that we are unlikely to experience in our own lifetimes.
I want to turn once more time to the banking sector. The banking sector is one of the industries that could have a strong leapfrog effect on development, if it acts adequately as both driver and enabler.
First, as a driver. The banking industry is rapidly evolving as new trends and disruptive technologies continue to reshape the sector. Fintech players are challenging the status quo with new operating models. They are leveraging digitalization in different areas (compliance, accountability, transparency, and risk management) to provide a tailored client-experience for their customers.
In this environment, banks need to redraw the roadmap for their industry. And, yes, they will need to collaborate as well as compete with the new fintech entrants. The World Bank’s client countries have been asking how these technological advances could support their development and what is the appropriate institutional framework to support these possibilities. The Bali Fintech Agenda, jointly developed by the World Bank and the IMF, is a response to this request. This is an agenda where both institutions have committed to leverage their expertise to provide client governments with technology-based solutions.
Stories across developing countries have made it crystal-clear that Fintech is transforming core pillars of the financial services industry: transactions and payments; lending and credit; as well as retail savings, investment, and insurance. For example, Fintech offers new ways to increase financial inclusion for households by facilitating payments and sending money to families in other cities, regions, and/or countries. In Sri Lanka, we count many digital financial services: Crowdisland, Helios, DirectPay, Park and Pay, JustPay, eZ Cash, etc… Not to mention the pure digital banking services launched by the banks.
Yet, Fintech comes with several risks that need to be addressed, and banks can play a leading role in helping mitigate these challenges. We must ensure that the fast speed of Fintech transactions does not translate into a weaker ability to operate and track cross-border transactions, or into weaker data privacy and cybersecurity safeguards.
Second, as enablers. Banks are critical actors for financial inclusion and, in Sri Lanka, banks have done a tremendous job in promoting it. The density of bank branches in the country currently stands at 18.6 branches for every 100,000 adults. And about 83% of the adult population has a bank account, with women recording a similar penetration rate, unlike many other South Asian countries.
We often hear that, in the case of Sri Lanka, old habits die hard. While banks are pushing the digital transformation in their sector, it seems that Sri Lankans still prefer to bank at their local branches, which are often a part of their own communities. This should come as no surprise in a country where over 80% of the population lives in rural areas.
When we look at the broader picture, we find that mobile phone connectivity and web traffic is growing. According to GSMA, over 70% of the population has a mobile connection, and 90% have 3G mobile network coverage. Smartphone uptake is growing rapidly, representing almost half the unique subscribers in 2017. In other words, even though the adoption of digital financial services in Sri Lanka is relatively slower than in other countries, it is on its way.
But having a bank account isn’t enough; it must be used. The challenge in Sri Lanka is less about the unbanked; it is more about the underbanked, especially the women. According to my colleagues from the International Finance Corporation (IFC), the number of individuals who reported no deposits and no withdrawals in 2017 was 31%. And only 17% of the women were successful in borrowing from financial institutions while, in the formal market, about 80% of the borrowers have been women. Moreover, less than 15% of SMEs and less than 1% of MSMEs use any form of insurance, which leaves businesses and individuals at greater risks.
In this challenging and changing environment, banks should be seen as development enablers. Banks can enable development through different means, such as: (1) designing innovative loan schemes for entrepreneurs; (2) supporting financial literacy and digital ecosystems in the development of new data-driven business models; and (3) adopting exemplary sectoral guidelines and best practices regarding data governance and cybersecurity in order to improve trust in the digital economy.
In other words, in times of disruptive change, we should rely on strong and agile institutions to help society transition in the best possible way. At the World Bank, we believe that the private sector has a critical role to play in supporting this transition, and that disruptive technologies can help accelerate development in the 21st century.
Finally, we believe that banks, all of you here today, have a critical role to play in financial inclusion, as well as in increasing access to financing for Small and Medium Enterprises. Banks also have a critical role to play in supporting remittances that can fuel growth beyond consumption, and help Sri Lanka leapfrog into the digitally-supported growth of tomorrow. You are part of the equation in Sri Lanka’s recent graduation into upper middle-income status, and you will continue to be very important for the country’s future.
On behalf of the World Bank, we hope to continue to adapt our support to Sri Lanka’s changing needs, so that it achieves the best outcomes for the country and its people.
In congratulating you all for a successful 31st Anniversary Convention, I would also like to remind you that no-one is immune to change; and that it is better to help bring about the change that promotes the greater well-being of all.
Thank you for your attention!