Micro finance sector undergoes reforms despite present cash crunch
Sri Lanka’s micro finance sector is to undergo reforms with the government’s new strategy of uplifting the living standard of the low income households who have already been trapped in a vicious debt cycle.
The Finance Ministry is now in the process of devising new plans of overhauling the microfinance institutions (MFIs) market with the introduction of public and private sector-driven, subsidised credit and welfare-oriented credit provided by co-operatives and community- based organisations and licensed financial institutions.
The new reforms plan and package of proposals with special focus on poor rural women will be presented to the Parliamentary Select Committee (PSC) on Gender Equality within a month, a senior of the State Ministry of Micro Finance told the Business Times.
The Treasury has already released Rs. 542 million for debt relief schemes and it operates a revolving fund. It has been decided by the government to continue the loan programme, increasing the maximum credit limit to Rs.60,000 per person.
The low interest loans are being provided to the debt-affected in the North and North Central provinces.
The Treasury has allocated Rs.292 million for the North and a sum of Rs. 250 million for the North Central to Co-operative Rural Banks and Thrift and Credit Co-operative Societies.
It has been estimated that around 14,000 people in the North Central province are suffering as they have fallen into the micro finance debt trap.
Micro finance institutions will be regularised and they will be involved in providing 'credit-plus' services to their clients, particularly to those in low income categories.
Development of rural infrastructure facilities will be given priority to improve the outreach of MFIs in remote rural areas and encouraging the private and NGO sectors to involve more effectively in microfinance provision, he revealed.
Enactment of a legal framework will be expedited to regulate unregulated money lending activities, thereby creating a better and more effective regulatory environment for money lending institutions.
A Microfinance and Credit Regulatory Authority Act (MCRA) has already been drafted towards this end and the approval of the Cabinet of Ministers for this will be sought shortly.
Once enacted, this will be helpful in further strengthening financial system stability and improving financial inclusion in the country, he added.
The previous government has given a partial debt waiver and an interest rate cap (as high as 35 per cent), for microfinance victims and the Treasury is not in a position to continue this scheme, he said adding that the entire country is struggling on the economic front, particularly owing to the COVID- 19 pandemic.
The government will be introducing “collective and collaborative entrepreneurship initiatives to protect economically underprivileged groups from the debt trap.
However hundreds of thousands of women are continuing their struggle demanding the authorities to write-off their microfinance debt, de-list all microfinance borrowers from Credit Information Bureau of Sri Lanka, suspend all legal action against microfinance borrowers and halt microfinance debt collection until a debt audit is conducted.
Micro financing is particularly attractive to women, especially when they do not have the collateral regular banking systems require, to obtain money for a self-employment scheme or to stabilise the financial viability of small family ventures.
But that attractive and seemingly easy loan scheme turns out to be a nightmare when the money lenders demand repayment of loans with unbearable high interest rates.
According to recent research reports around 2.8 million people are victims of current micro finance systems and a majority of them are women. At least 200 persons, unable to pay back their debts have committed suicide, these reports revealed.