Microfinance Act to be amended to meet the current needs
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 very 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.
The gravity of this problem cannot be assessed as desperate borrowers have resorted to killing themselves as they have no means to repay loans.
According to an official fact-finding report a large number of rural people has fallen into 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 micro credit loans.