Government to regulate Sri Lanka’s micro finance sector soon
By: Staff Writer
Colombo (LNW): Government is to regulate Sri Lanka’s microfinance sector as only 5 institutions have been registered out of around 11,000 microfinance institutions operating in the country says the Minister of State for Finance, Ranjith Siyambalapitiya.
The Minister disclosed that steps will be taken to implement a separate authority to regulate the microfinance institutions.
The Minister pointed out that the rural low-income people are the most affected by these institutions, which are operating without regulation, and about 3 million people are affected by various inconveniences.
Saying that this problem has now reached the international level, Mr. Siyambalapitiya mentioned that new laws will be brought to regulate the microfinance sector.
However, he further noted that operating such micro-finance institutions that do not fulfill the legal requirement is an offense punishable by a fine of 5 million rupees and imprisonment of 5 years.
The government reiterates the need of a legal framework to regulate unregulated money lending activities so that a better and more effective regulatory environment is created for money lending institutions in the future.
A suggestion has been made to amend the Microfinance Act No. 6 of 2016 to suit the current development and financial issues.
The State Ministry for Micro Finance will appoint a special committee to look into grievances and gather information of borrowers who have already fallen into the micro finance debt trap.
It will make recommendations and find remedies to financial problems faced by rural poor as soon as possible, a senior ministry official said.
State Minister Shehan Semasinghe revealed at meeting of officials that the micro finance committee comprising officers from the Treasury, Central Bank, State Ministry of Micro Finance, and representatives of money-lending institutions will collect all data relating to the present situation of the business and submit a report soon.
For over a decade the Central Bank has tried to regularise the microfinance sector in the country and finally on July 15, 2016, the Microfinance Act No. 6 of 2016 was introduced.
It has enacted a direction to curtail the interest rates charged from the borrowers by Licensed Finance Companies (LFCs).
The Act has provision for the creation of a Credit Regulatory Authority to provide for the regulation of the money lending and the microfinance businesses and to provide for matters connected to it, including protection of customers of said businesses.
The main objectives of the Authority is to regulate and supervise licensed moneylenders; licensed microfinance institutions, coordination with regulatory authorities of Co-operatives, Samurdhi community development banks and entities formed under the Agrarian Development Act.
However, the problem is much larger and complex than on the surface and it is essential to take several corrective measures to stabilise the industry, financial experts said.
Micro finance lending involving banks and finance and leasing companies has become a complex problem in Sri Lanka, the experts said adding that patch work solutions will not help in solving this burning issue.