Concessions soon for micro finance loan victims
The Government is considering concessions for micro finance loan victims while introducing strict regulatory control on micro finance businesses using ‘rough’ tactics in the loan recovery process.
State Minister for Development Banks and Loan Schemes Shehan Semasinghe said that immediate relief will be granted to small and medium scale entrepreneurs to free them from a situation that they have faced in the country at present.
Prime Minister Mahinda Rajapaksa has held initial discussions; with the state and private banks to find solutions for problems of micro loan borrowers facing severe financial difficulties.
Minister Semasinghe disclosed that prompt concessions will be given soon when relevant reports are received from the respective banks.
Micro finance lending involving banks, finance and leasing companies has become a complex problem in Sri Lanka, economic experts said adding that patch work solutions will not help in solving this burning issue.
More than 82 per cent of Sri Lanka’s population including 92 per cent of the poor live in the rural areas of the country. Therefore, they have become easy targets for these money lenders or lending institutes, they added.
The gravity of this problem cannot be assessed as desperate borrowers have resorted to sometimes killing themselves as they have no means to repay loans, they said, pointing out that at least 170 have committed suicide last year.
According to an official fact finding report a large number of rural people have fallen prey in a cycle of debt, with many lenders charging very high rates of interest.
Villagers had to face harassment from the debt collectors and there have been allegations of physical assaults.
The report highlighted that field officers decide repayment rates in most cases; they sometimes use violent tactics to collect installments of microcredit loans.
For over a decade the Central Bank has tried to regularise the microfinance sector in the country and finally in July 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 Central Bank has also taken measures to enact the Credit Regulatory Authority in Parliament 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 money lenders; 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 very much larger and complex than what is on the surface and it is essential to take several corrective measures to stabilise the industry, the experts said.