Samurdhi Ministry attempts settling loans of debt-trapped rural borrowers

The Samurdhi Ministry is looking at how it could assist the hapless rural borrowers defrauded and trapped by microloans with interest rates running as high as 300 to 360 percent per annum in certain cases. According to Samurdhi, Household Economy, Microfinance, Self-employment, Business Development and Underutilised State Resources Development State Minister Shehan Semasinghe, the ministry together with the Samurdhi Banks network is looking at how they could help to free those who were held hostage by some of the unscrupulous micro lenders by issuing loans at rates as low as 7 percent to the borrowers.

“We are expecting to issue funds at concessionary rates to groups (of people) through Community Financial Societies (Praja Muulya Sanvidhana) by working with the Samurdhi Banks network,” Semasinghe said. “What we are trying to do here is to create a mechanism for those who obtained loans at interest rates in excess of 300 percent to settle such loans,” he added. The ministry is also in talks with the microlending institutions to find redress and also to bring down the interest rates of the loans in line with the market rates from their astronomical levels. The rural household indebtedness is a perennial issue plaguing the Sri Lankan rural economy and the mushrooming of microlending institutions during the last two decades aggravated this problem as they exploited the illiterate or low literate rural borrower by lending at sky high rates. A draft bill titled ‘the Microfinance and Credit Regulatory Authority Act’ is now before the Cabinet, which will replace the existing Microfinance Act, as the new bill addresses some of the shortfalls in the exiting legislation in providing regulatory oversight to the broader money lending activities.