Micro Finance Regulatory Authority to rescue poor debtors
In the wake of debt driven suicides in the East and ever increasing borrowings by women in the North and South for the sustenance of their families, the Finance Ministry is compelled to amend the 2-year old Micro Finance Act No 6 of 2016.
The amendment bill which is in the process of drafting will provide for the setting up of an independent regulatory body for microfinance companies.
The Act will be amended to make it compulsory for all microfinance firms register with the proposed authority, a senior adviser to the Minister of Finance and Media, Mano Tittawella disclosed.
This will prevent the arbitrary actions of micro financial institutions mushrooming in poverty stricken areas of the country especially in the North and East, he said.
Welcoming the decision, Central Bank (CB) Governor Indrajit Coomaraswamy said the bank will conduct a household survey on the growing indebtedness in the North and East.
“We are concerned about the rise in household debt,” the governor said, referring to the present challenge facing families that are rebuilding their lives after the ending of war.
Some of these firms are in the practice of levying high interest rates ranging from 40-to-200 per cent and using thuggery to recover small loans given to the poor.
It has been revealed that certain individuals under the guise of microfinance firms are engaged in lending to people in the Northern Province for consumption-driven purposes.
Mr. Tittawella expressed the belief that the proposed authority would be able to issue directives that are legally binding to member firms basically tackling the various problems of indebtedness in the long term and also solve the complexities of multiple loans the poor are facing at present.
The present Micro Finance Act provides for the licensing, regulation and supervision of companies carrying on microfinance business, which are called licensed microfinance companies (LMFCs) and which are directly regulated by the CB’s Monetary Board. The Act provides for the registration of Microfinance Non-Governmental organizations (MNGOs) registered under the Voluntary Social Services Organizations in accordance with Registration and Supervision Act No. 31 of 1980.
But there is no clear authority to regulate the industry, as the CB’s task is to safeguard the depositors of the microfinance industry while ensuring the financial stability.
While exact figures on accounts and assets are difficult to ascertain owing to the lack of monitoring mechanism, the Lanka Micro Finance Practitioners’ Association representing nearly 80 MF outfits in the field, recently surveyed 37 of its member companies.
Results found that they served some 702,900 active borrowers and 104,400 depositors with a combined deposit value of Rs 923.6 million.