Notes from the Field

As Sri Lanka’s Economy Grows, Commercial Disputes Heat Up

March 27, 2013

Despite decades of internal conflict, Sri Lanka now boasts high-income growth and a notable reduction in human development index shortfall, according to the just-released 2013 Human Development Report entitled, “The Rise of the South: Human Progress in a Diverse World.” Sri Lanka’s economy expanded last quarter faster than analysts estimated. With the end of Sri Lanka’s 26-year civil war in 2009, the government is clearly focusing on expansion, with new investments in infrastructure and the private sector that are helping to spur growth and contributing to an increase in disposable income and rising consumerism. While this growth is largely positive, there has also been a significant rise in the number of commercial and financial disputes between citizens and institutions as a result.

For most Sri Lankans, resolving disputes through the nation’s beleaguered formal courts is not an option. Despite efforts to improve efficiency, courts are weighed down by excessive case loads and limited capacity, and high litigation costs make access to courts prohibitive for most. For decades, community mediation boards – made up of non-political, volunteer mediators who facilitate voluntary settlement of minor disputes – have helped to fill this void. [Watch a slideshow about community mediation in Sri Lanka.] Since then, mediation boards have played an important role in providing recourse for citizens to settle their disputes through a system that is affordable, rapid, and effective. There are currently 309 mediation boards operating across the country with new mediation boards being established in the Northern Province, specifically in the districts of Kilinochchi, Mulaitivu, and Mannar, which were severely affected by the war. Over the past two decades, the boards have mediated over 2 million disputes and approximately 60 percent of them have been successfully resolved.

Community Mediation in Sri Lanka

For most Sri Lankans, resolving disputes through the nation’s beleaguered formal courts is not an option. Community mediation boards, such as this session above, often fill the gap. Photo/Gemunu Amarasinghe

But with the end of the war and a growing economy, mediation boards are seeing a drastic change in the nature of disputes that are being brought forth by the community. The banking sector is proactively lending more with an increase in agriculture and production related loans; insurance companies are doing more business with individuals and small companies; the IT market is buzzing with youth rapidly moving to smart phones to access high speed data; and small businesses are expanding and new ones are being set up especially in the war-affected North and East. The global slowdown has dampened spirits somewhat, but has not put brakes to the growth in the country.

Commercial disputes constituted over half of the total disputes in 2012 with the highest number of referrals (43%) from financial institutions such as banks and commercial institutions. State and private banks, telecommunications service providers, insurance and leasing companies, electrical and home appliance retailers, and small business owners are increasingly turning to mediation boards to resolve disputes over non-repayment of loans taken for the purpose of cultivating cash crops including the purchase of seeds and fertilizers, construction and repair of homes, and expanding small businesses. Insurance-related disputes arise largely because the insurance policy is in English and clients do not fully comprehend the terms and conditions for payment of premiums. A large number of cases deal with non-payment of utility bills and telecommunication bills for smart phones.

The North and East is no exception, where commercial disputes are also increasing. A recent study conducted by The Asia Foundation suggests that disputes related to financial transactions are the most frequent type of disputes received by mediation boards across the three Eastern districts of Ampara, Batticaloa, and Trincomalee. “On average, about 60 percent of the disputes we receive relate to financial transactions, particularly bank loans and seettu, a traditional community-based informal system of saving,” S. Varadarajah, chairman of the Vavuniya Mediation Board in the North, told me recently.

While some commercial disputes are easier to resolve, others are more complicated, and mediators often find that these disputes take longer. In a recent discussion at the Ministry of Justice, the mediation trainers pointed out that in general, mediators do have difficulties in relating the principles and concepts of mediation when the dispute involves certain financial or legal aspects.

“Mediating these commercial disputes is not easy as in most cases there are genuine reasons as to why people default on payments, but at the same time the banks and other financial institutions are not always willing to renegotiate the terms and conditions that were initially agreed upon,” they commented.

Mr. C. Attapattu, chairman of the Sri Jayawardenapura Kotte Mediation Board in the Colombo District, says that two thirds of the disputes that come to the board are commercial related.

“Almost all banks in the area, including state and private banks, use the mediation board. And we have about 20 institutions including leasing companies, lending institutions, and home appliance retailers which regularly bring disputes for mediation.” He also said that “some commercial institutions have even told us that they are willing to pay for the service we provide as they prefer to have the issue sorted through the mediation board rather than going to court.” However, in keeping with the spirit of mediation in Sri Lanka, the service continues to be provided at virtually no cost, with the disputant only having to spend five rupees (less than five U.S. cents) for the application.

This community-based system, which has proven to deliver results at virtually no cost, has become a popular and widely accepted system not only among individuals, but also institutions. With the nature of disputes changing, training on techniques of commercial mediation has now become a vital training component in Sri Lanka. Mediators need to be adequately equipped with the necessary skills and knowledge in order to facilitate the efficient and effective resolution of commercial disputes. This is something that is here to stay and likely to increase as the economy continues to grow. Sri Lanka’s community mediation boards need to be prepared to face the new challenges and opportunities this brings.

Gita Sabharwal is The Asia Foundation’s deputy country representative in Sri Lanka. She can be reached at gsabharwal@asiafound.org. The views and opinions expressed here are those of the individual author and not necessarily those of The Asia Foundation.

2 comments on this post:

  1. ajith wickramasekara:

    thank you for all what you have done. please consider training srilanka police on counseling

    thank you

    with warm regards

    ajithw

  2. Even there are minor conflicts, Sri Lanka is growing on its economy and in future there will be more difficulties for the public till it grows and but can’t make sure when will it hit the target.

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