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Sri Lanka's postal service looks to financial service for solace, while reforms languish
09 Aug, 2006 13:05:58
By Ishara M Gamage
Aug 9, 2006 (LBO) - Sri Lanka's postal department is looking to provide agency financial services to boost revenue and reduce its operating deficit.
It has a long association with the state-owned National Savings Bank and is used to dealing with savings accounts.

"We feel that the post office is the ideal location in the rural sector to play a vital role as the hub for financial services," says Sri Lanka's Post Master General Sherwin Senadheera.

"At the moment we are considering several proposals from private and public banks."

Senadheera says privately owned Hatton National Bank and Sampath Bank has already submitted proposals to use the post office network.

Government owned State Mortgage and Investment Bank, a housing lender has also submitted a proposal to take mortgage lending to rural areas.

Sri Lanka Post had also talked with DFCC and NDB - two quoted development banks which are transforming themselves into commercial banks - but lacks a branch network.

Senadheera says his department has struck a deal with the international bank, HSBC to have credit card promotions through 46 'supra grade' post offices in the larger towns of Sri Lanka.

"There are also proposal from HSBC to accept bill payments through the post offices and deposit money," says Senadhera. "The post office is the ideal place."

The department has also forged an alliance with Sri Lanka Insurance Corporation a privatized insurer which has the largest asset base in the country.

Though postal reforms have been stalled, due to union and political pressure for some year, Senadheera says some improvements can be done even within a departmental framework.

"Post offices can be changed, the appearance can changed, new equipment, machinery, systems and procedures; all these can be changed," says Senadheera. "We simultaneously the attitude of the people also has to be changed."

But to really put the department on a commercially viable track, structural reforms are needed which will give financial autonomy and freedom to make quick decisions.

Last year the postal service has reported an operating deficit close to 1.6 billion rupees. This year it could climb up to two billion rupees with the latest salary increases and the rise in transport costs.

Like many government departments and enterprises, Sri Lanka Post is running a deficit largely because its services are under priced.

Business mail which consists about 75 percent of its business, costs and average of ten rupees to deliver but revenues are only five rupees.

Meanwhile private courier services are eating into its market share.

Senadheera says Post can compete by raising quality of service if charges are also adjusted.

"Lots of private courier agencies are also providing the same service," says Senadhera. "But they charge a certain amount and provide a better quality of service. Customers of those companies are still happy and pay a very much higher charge than we charge. If we can maintain the quality of service, there is no doubt that any customer would be prepared to pay."

Successive Sri Lankan governments have been reluctant to increase the charges of government service due to culture of dependence prevalent in Sri Lankan society.

Like many poorly-managed countries, Sri Lankan governments usually borrow money and push up national debt or print money and drive up inflation in order to finance subsidies and under-priced services.

In many developed countries, letter for personal communications are on the decline with the advent of telecommunications and the internet.

But parcel post is making a comeback especially with e-commerce based retailing taking off in a big way.

But to make use of these opportunities the postal service needs to be nimble and forward looking.

Despite the problems in the sector, analysts say the postal network with 4000 offices around the country, is a vital tool of communications for the country which can be productively used if long-overdue structural and price reforms are implemented.
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