In addition to authorized dealers, Sri Lanka Post (SLP), the National Savings Bank (NSB), which is a licensed specialized bank, and one private company, MMBL Money Transfer Ltd. (MMBL), which is a subsidiary of a Merchant Bank in Sri Lanka, are permitted to engage in money transfers as restricted dealers. Of these, NSB and MMBL are permitted only to engage in inward money transfers. Although provisions under the Exchange Control Act prohibit any other entity to participate in the remittance business without the permission from the central bank, some informal remitters are in operation. The identification of these informal dealers becomes difficult as their operators and localities are unknown and they hardly keep readily accessible records of their transactions (Hettiarachi, 2005). Estimates based on a recent World Bank study (2005a) suggest that the share of private remittances channeled through informal dealers could have been close to 45 percent in the mid-1990s.

_The potential of the formal remittance infrastructure is not being maximized_ . The country remains largely cash dominated. Although the banks report a relative good (checking) account-to-per-capita ratio of about 1:6, the usage appears low, with only 4 cashless payments transactions per capita, or approximately 25 per account per year. On the other hand, many Sri Lankans keep large amounts of cash at hand. An average Rs. 5,000 per capita were in circulation with individuals in mid-2004 (Boon 2005). This suggests that access to basic payments services is in practice difficult. There is close to one branch per 14,000 inhabitants, but this ratio is inadequate to serve the nation given that the financial sector is predominantly cash-based and paper-based.<sup>9</sup> Lessons from other countries show that this ratio should at least be 1:6,000 and ideally better than 1:3,000, as is the case in most industrialized economies (Boon 2005).

The remainder of this section examines the state of the formal and informal infrastructure for remittances in Sri Lanka. As is the case in other regions, the financial remittance market includes three principal actors—commercial banks, money transfer businesses, and informal money transfer agents. Slowly, other actors—such as the post office and microfinance institutions—have begun exploring opportunities in the remittance industry but their participation is still in its infancy.

# **Commercial Banks**

_State commercial banks, especially Bank of Ceylon, have long dominated the official remittance business, in part because of their large branch networks._ In 2004, their network comprised 618 branches compared to 1734 for the entire banking system and together they channeled close to 70 percent of private remittances.<sup>10</sup> Table 3 summarizes the contribution of the main commercial banks to private remittances during the last 3 years.

_The retail product range of the commercial banks is fairly broad, ranging from checking accounts, deposits, credit, insurance, and securities._ For migrants and their relatives, banks offer check products as well as electronic and internet based products. In a recent survey of financial institutions, Hettiarachi (2005) found the following were the most widely used instruments for transferring money: (i) Telegraphic Transfers based on SWIFT messages; (ii) drafts/checks drawn on banks;<sup>11</sup> and (iii) international money orders issued by banks and post offices.

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