Microfinance Institutions Act soon in Parliament

The micro financing sector in Sri Lanka is to be streamlined under a regulatory framework to prevent aid wastage, duplication of funds and corruption in the implementation of projects aimed at alleviation of poverty which is one of the prime objectives of the government.

No government could solve this national issue on their own, according to microfinance experts, adding that it’s a collective responsibility of all sectors, including private, non-government and the civil society.

The Microfinance Institutions Act intended to be implemented by the Non-Banking Supervision Department of the Central Bank of Sri Lanka will be presented to parliament next month making it compulsory for all microfinance institutions to obtain a license to operate which is compulsory. The license will specify, among others, the operative area within which the institution may carry on its microfinance business, according to the Chairman of the Banking with the Poor Network Chandula Abeywickrema, who is also Deputy General Manager –Personal Banking Hatton National Bank.

He was speaking at a media conference convened to announce a link up between Citigroup Foundation with the Foundation for Development Co-operation (FDC) and Banking with a Poor Network (BWTP) in Sri Lanka to widen banking access to local micro enterprises in Sri Lanka.

The two-year programme will promote public –private partnerships and industry best practices that will help existing micro finance providers to expand the reach and range of services delivered to the poor, he said. Sri Lanka with a growing number of donors is now looking for a better approach and accessibility towards people in need. Asia, considered as the birth place of micro finance, still has 200 million poor and low income households which do not have access to financial services. Abeywickrema pointed out that many large donors actively support the Sri Lankan micro finance sector with the number growing substantially following the 2004 tsunami. Donor support covers most of the country although the conflict affected areas in the North and East are supported by fewer donors due to accessibility issues and also the limited number of microfinance institutions through which funds can be channeled.

“The project’s objective is to pool and disseminate knowledge, skills, tools and know how in the application linkages and partnerships in micro finance,” FDC executive director Craig Wilson said. He added that this programme helps to take microfinance into new territory and to introduce new technology such as mobile phone banking, and diversified products like assets leases, life insurance and pensions, giving rise to better services for the poor.

Under the provisions of the proposed new Act, a minimum Core Capital or Net Asset amount for National District and Divisional Secretary levels is to be specified. It is suggested to have some flexibility by allowing the Director, Non-Banking Supervision to take decisions regarding the minimum core capital or net asset levels. This is because, if it is being specified in the Act, any amendment will need an amendment to the Act which wil be a long and difficult process.

Smaller MFIs having Core Capital/Net Assets of less than Rs. 1.0 million, may not be subject to regulation, unless such MFIs mobilize deposits. Auditing standards are to established for microfinance institutions. This will be helpful for audit firms to conduct standard audits in microfinance operations.

It has been suggested microfinance institutions should be permitted to accept not only cash grants but also material grants.