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New legislation to regulate micro finance companies
View(s):Legislation to regulate and supervise microfinance institutions, including finance companies and banks accepting deposits from the public, will be introduced in Parliament. The initiative comes from President Mahinda Rajapaksa in his capacity as the Minister of Finance and Planning. He has recommended to ministers a three-tier system.
In tier one, large MFIs (micro financing institutions) will come under direct supervision and examination by the Central Bank of Sri Lanka (CBSL). In the second, small MFIs will be under the supervision and examination by the CBSL-approved audit firms which will report to the CBSL for enforcement of regulatory action.
The third tier, according to President Rajapaksa, will bring in all institutions falling under the Commissioner of Co-operative Development and Registrar of Co-operative Societies, the Divineguma Department and the Board of Management of Divineguma community-based banks and banking societies. The Commissioner General of Agrarian Development will be exempted from the CBSL regulation and will come under the regulation and supervision of the authorities already empowered under the relevant statutes.
The President’s move comes in the wake of some finance companies defaulting on re-paying deposits made by the public. The worst such instance was the collapse of Ceylinco which has held deposits running into billions of rupees.
Some of the significant highlights of the new legislation are:
- No person other than a licensed MFI and an exempted entity can carry on microfinance business after the law is introduced.
- The new law will not apply to banks licensed under the Banking Act, finance companies licensed under the Finance Business Act and community-based organisations established with social objectives and engaged in microfinance business. Such ventures should have been authorised by the CBSL under the Microfinance Act.· Those in the microfinance business and not registered will be allowed to carry on business only for 18 months. Thereafter they will be required to obtain a licence.
- A public company, an offshore company or an overseas company will be eligible to apply for a licence. Public companies and companies limited by guarantee will also be eligible.
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