Sri Lanka’s two major political parties in their recently released manifestos have made two surprising pledges to the public that, according to analysts, may place the intended beneficiaries in further financial constraints.

The United National Party (UNP) in its manifesto pledged to provide loan facilities up to Rs.5 lakhs and encourage them to invest in the stock market with a view to pave way for broad based share owning democracy.

The United People’s Freedom Alliance (UPFA) in the meantime has promised a credit card facility of up to Rs. 100,000 for three-wheel drivers.

While investing in stock market is considered risky without the technical know-how, usage of credit cards without the knowledge of using them effectively could push people in to a debt burden, analysts said. Hence they pointed out the need for a detailed description of the manner in which they would be implemented for the benefit of the respective segments of the society.

In terms of investing in the stock market, analysts pointed out that such an endeavor needed a technical understanding of how the stock market worked.

“Equity as an asset class is volatile. People need to understand that. Therefore, those who invest in the stock market should have the expertise on how it functions and also have patience,” CEO and MD, JB Securities, Murtaza Jafferjee.

He pointed out that the majority of people in Sri Lanka were averse to risk taking and therefore, such proposals needed a clear mechanism. “People need to know how these proposals are to be implemented. Aspects such as interest rates, how people are to be selected, whether loans would be given through banks, whether it would be linked to their EPF accounts and repayment schemes, etc. should be clearly spelt out,” he said.

Meanwhile, former governor of the Central Bank, Ajith Nivard Cabraal charged that the UNP’s pledge would have a Rs. 250 billion impact if not implemented properly. “We have around 500,000 small scale investors, and if each would be provided with the said amount without a clear mechanism or an understanding, then it would have a huge impact if the investors face losses in the stock market,” he said.

Meanwhile, analysts also said the UPFA’s pledge to provide credit card facilities to three-wheel drivers also needed a comprehensive plan which spelt out aspects such as interest rates, repayment schemes and concessions.

“Many of these drivers could already be in debt due to the loans to be paid for their vehicles. These aspects should also be looked into when considering giving loans,” a senior analyst said.
In addition, it was also pointed out that many people who obtain credit cards were not aware of the amount of additional costs involved in repayment in the event a payment is delayed.

The analyst said credit card companies could impose a host of other fees and penalties that could push them further into debt trap. Some common fees include late-payment fees, over-the-limit fees and foreign transaction fees etc. “The financial stability of the beneficiaries should be checked and established. The banks should also be consulted and their views should be incorporated. Therefore, the implementation of such a plan needs some work if they are to be implemented,” the analyst who wished to stay anonymous added.