Micro finance blamed for rising indebtedness in North
Rising indebtedness in Sri Lanka’s former-war wrecked northern region has been caused by unscrupulous micro finance companies, some charging penal interest rates as high as 300 per cent, as poverty-stricken residents struggle to pay off loans. While one woman, unable to repay the loan and accumulated high interest, committed suicide in Vavuniya, others are suicidal and families have broken up from the social unrest arising out of the inability to repay loans.
These matters came to the fore during several meetings in the north last week between visiting Central Bank Governor Dr. Indrajit Coomarasamy, government officials and civil society representatives where the importance of controlling the activities of insensitive micro finance companies was urged. Former President Chandrika Kumaratunga, an active participant at the meetings, at one point explained how micro finance companies were charging as high as 300 per cent interest.
his is in addition to a fine when repayments accumulate.
The governor, during a 2-day tour of the north, had discussions with divisional secretaries and civil society organisations in Jaffna and Kilinochchi following several complaints against micro finance companies. The governor, who acknowledged that the banking regulator had also received several complaints of arbitrary increases in interest rates, suggested a public awareness campaign on indebtedness while it was also urged that state banks should relax conditions and constraints towards getting a loan, to eliminate the need to resort to micro finances. Loans are taken by mostly women to start a small business, buy a few cattle or chickens to earn an income for the family.
While banks and finance companies are registered under the Central Bank with powers to take action against errant organisations, the banking regulator has been ineffective in controlling high interest rates by finance companies, at the expense of the clients, residents in Kilinochchi told the governor.
“You should find a solution to this problem. Protect our women from the micro finance companies,” pleaded a representative from a women’s organisation. It was revealed that sometimes micro finance company employees go to the homes of clients at night to collect the installment. Finance company representatives also use abusive language on hapless women, it was revealed. Kilinochchi and Mullaitivu are war-effected areas where people are facing poverty, a situation in which micro finance companies thrive. Coupled with restrictions from state banks to get loans, micro finance companies – in offering high interest loans – have taken advantage of the situation and push struggling loan recipients.
Residents urged that these finance companies should be banned from Kilinochchi, Mullaitivu and Jaffna. Divisional Secretaries of the two districts said family separation was taking place due to the problems. Pyramid-type businesses are also springing up in the north, government officials said. Dr. Coomarasamy stated that the aim of his visit was to understand indebtedness in the north and other financial constraints, and find solutions to the problems.