Sri Lanka’s Tamil Tigers have no security cameras or guards protecting their bank. Yet they say it is the safest place for customers to deposit cash and gold both in times of war and peace.



The Bank of Tamileelam (BOT) is not recognised by Sri Lanka’s Central Bank but the financial institution in Kilinochchi, 330km north of Colombo, has full management of monetary policy in Tiger territory.



The Tamil Tigers set up the bank in May 1994, after first establishing their own police force three years earlier. Since then, they have adopted their own administration and legal system to strengthen claims for a separate state called Eelam.



The bank uses Sri Lankan currency but offers rates higher than any commercial bank on the island - it pays 8.5% on fixed deposits compared to the national average interest rate of 5.7%.



Lending rates, too, are marginally lower than commercial bank rates elsewhere in the country - between 9.0% and 18% compared to 11.42 and 33.6%.



Managing director Mahalingam Veerathevan said war had been good for securing deposits but a truce since February 2002 was proving even better for business.



“During war people want to deposit money and gold,” Veerathevan said in an interview in Kilinochchi.



“But during peace people are borrowing more and we have just launched a campaign to mobilise savings from among children.”



The 36-year-old Veerathevan, a business administration graduate from the university of Jaffna, the former stronghold of the Tigers, says he is now managing a deposit base of $15mn.



The Tiger bank does not publish profit and loss accounts and instead reports only to a board of seven members who are direct appointees of Liberation Tigers of Tamil Eelam (LTTE) leader Velupillai Prabhakaran.



The seven-member board decides monetary policy and is expected to announce a rate hike next month to tackle high inflation.



“The Sri Lankan Central Bank has printed a lot of money without goods and service to back it,” Veerathevan said.



“That has caused high inflation in Sri Lanka and because of our trade with them we also suffer the contagion.”



Demand has also increased in LTTE-held territory where there is no official measure of inflation, but residents agree that prices are rising just as in other parts of the country where inflation was 12.8% at the end of August.



Veerathevan said the February 2002 truce had sparked a huge jump in demand for credit with more people borrowing from the BOT either to rebuild their homes, set up business or buy goods such as solar-electricity panels.



Deposits increased 42% in 2003 compared to a rise of 30% in the previous year while lending jumped by 40% in 2003, up from a 20% increase in 2002, he said.



The loan default rate, Veerathevan said, is minimal. “It could be less than 1%,” he said, adding that “prudent lending policies” helped achieve the high recovery rate. “Nothing has been written off as a bad debt.”



The ownership of the banks is not in doubt. The bank’s logo carries the LTTE’s insignia, a roaring tiger with paws outstretched over a pair of crossed assault rifles and ringed by 33 bullets.



“We don’t send anyone with a gun to collect instalment payments,” stressed administrative manager Kandiah Balakrishnan.



“We don’t use (Tiger) cadres, but we have employed graduates in key positions to ensure good recovery.”



Four of the bank’s 12 branches have been computerised and the main branch here in Kilinochchi uses plasma screens which compete for space on counters decked with dog-eared ledgers for 10,000 depositors and 300 current account holders.



Cheques issued on BOT are not accepted anywhere else in Sri Lanka and can be used only for trade within the parts of the island’s north-east dominated by the Tigers.



Sri Lankan government banks also operate here allowing a conduit for people to receive money from abroad and the Tigers have not interfered with their work.



The BOT is not recognised by any other bank in the world so it can’t correspond as a bank with customers anywhere else, including in other parts of Sri Lanka.



The Central Bank regularly issues statements saying the BOT is illegal and has no right to solicit deposits. However, the Bank’s writ does not apply in Tiger territory.



Veerathevan says the bank has never once been robbed. When asked why, he smiles and says simply, “No one has tried to rob us. It is very safe here, unlike the rest of the country.”