ECONOMYNEXT – Sri Lanka is cutting cross-border transaction costs for expatriate workers and making official channels more competitive with a new remittance app, Central Bank Governor Nandalal Weerasinghe said.
Sri Lanka’s central bank has been encouraging the use of technology in banking to cut costs and online take up was growing, Governor Weerasinghe said at an event to promote Lanka Remit, a mobile application to make it easier for expatriate workers to send money home.
Using Lanka remit will help track remittances and claim duty free and other benefits provided by the government, Foreign Employment Minister Manusha Nanayakkara said.
In many countries financial start-ups, telecom firms as well as the banking sector was transforming the sector and reducing the need for customers to physically visit banks. In Sri Lanka entities linked to the state such as Lanka Clear was helping reduce transaction costs.
However cross-border transaction costs remained high, Governor Weerasinghe said at the lauch of Lanka Remit developed by Lanka Clear, Sri Lanka main clearing house for domestic transations.
There were many reasons for people shifting to unofficial channels like Undiyal and Hawala.
These include the inability to get foreign exchange through official channels for otherwise legal transactions, as well as for illegal acts and for under-invoicing, Governor Weerasinghe said.
High transaction costs was also a reason.
In the case of Undiyal style transaction recipients were sometimes delivered the money at home and they also got a better rate.
However the Lanka Remit app would make it easier for expat workers to send money home.
Unofficial channels were based on trust and carried a risk, Governor Weerasinghe said. But systems like Lanka Remit were regulated.
Sri Lanka lost official remittances to unofficial channels as money was printed by the central bank to trigger unsustainable credit and imports, triggering forex shortages – a problem associated with soft-pegged central banks.
Governor Weerasinghe after taking office allowed interest rates to go up, which has sharply limited money printing and also domestic private credit which is the channel through which printed money is pushed to the balance of payments, analysts say.
Already economic activity and outflows have slowed and bank net open positions were improving.
Parallel exchange rate premiums were also falling.
The Lanka remit application It could be easily downloaded from places like Google Play.
Dinuka Perera, Chief Operating Officer of Lanka Clear said the expat workers would either need a debit or credit card to use the application.
However efforts were under way to allow account to account cross-border transfers.
Lanka clear was working with Asia Payment Network which operated 11 countries
“We are looking at forging remittance partnerships with a Middle East network as well,” Perera said. ”
“We will be able to facilitate account to account transfers.”