Banking Rules fail the elderly and informal sector

Yesterday, I received a phone call from a well-known private bank. A polite female voice on the line asked whether I was interested in obtaining a housing loan. Knowing how things typically work in the Sri Lankan banking system, I decided not to waste her time—or mine. So, I responded candidly: "I'm over 60. Are you still interested in offering your service to me?"

- by C. A. Sallya

As expected, she politely replied, “No sir, we offer housing loans only to customers below the age of 60." Now, let's think about this for a moment. If you're 59 years old, does that mean the bank will give you a housing loan with just a one-year repayment period? Apparently, yes. What kind of absurd banking logic is this? Such rigid age cut-offs do not reflect risk management, but sheer bureaucratic laziness.

Banks and other financial institutions follow rules set by the Central Bank of Sri Lanka. One of the main reasons for these rules is to protect the money that people deposit. Figure 1 shows one of those orders to regulate home loans provided by banks.

Employees are to provide banks with confirmation from their respective employer regarding the retirement date/age, as applicable. This requirement introduces administrative friction for the borrower and places unnecessary dependence on employer documentation. Many private sector employers do not maintain strict retirement policies, and contract-based employment has become common. Mandating employer confirmation becomes especially problematic in such cases.

Eligibility Criteria for Housing Loans Under the Terms of This Order (Effective from 10 December 2020) specify the following individuals are eligible to obtain housing loans:

Salaried Employees

• Individuals must be employed in either the public sector (e.g., government departments, state-owned enterprises) or the private sector (e.g., registered companies, private institutions).

Confirmed in Service

• The employment must be confirmed, i.e., the borrower should have completed any probationary period and be in permanent or long-term service. Probationary employees or temporary/contract workers may not be eligible under this order.

This eligibility criterion is narrow and exclusionary, especially in an evolving labour market where: