Sri Lanka’s microfinance bill under fire from community groups

Sri Lanka’s microfinance and credit regulatory authority bill tabled in parliament last month to regulate mushrooming rural credit institutions is now under fire following concerns of civil society activists on its inadequacy in addressing exploitative practices at the grassroots level.

The provisions of the new bill have failed to restraint exploitation and exorbitant interest rates levied by lenders targeting vulnerable communities, several community service organisations complained.

These organisations have been demanding the government for the withdrawal of the proposed bill, stating that it has failed to provide any relief for the poor rural borrowers who became victims of the microfinance institutions.

They alleged that big finance companies are not regulated under the proposed legislation. But a high official of the Central Bank said that such companies have been regulated under several monetary laws and the new legislation is to regulate minor organisations.

According to the Finance Ministry statistics, around 11,000 microfinance institutions are active in Sri Lanka out of which only four are registered with the Central Bank.

On February 9, the Sectoral Oversight Committee on Alleviating the Impact of the Economic Crisis focused on the parties aggrieved by the impact of the micro finance crisis affecting 28,000 rural poor.

It transpired at the meeting that people have taken microfinance loans at 38- 48 per cent interest and the proposed bill does not address the concerns of the aggrieved parties.

The committee directed the Central Bank and the Finance Ministry to jointly review the bill and amend it to provide solutions to the real problems of the victims and not to protect the six major financial companies.

State Minister of Finance Ranjith Siyambalapitiya said that several meetings were held between the Finance Minister, the Central Bank and civil society organisations to reach a consensus about the regulatory process.

The minor community organisations in villages such as women’s welfare organisations, death donations and welfare societies, Sarvodaya Shramadana Societies and women’s organisations engaged in community savings and credit providing activities will be given a time period of two years to meet the standards stipulated by the new bill, he added.

Meanwhile a petition has been filed at the Supreme Court by Transparency International Sri Lanka, challenging the bill claiming that the bill lacks compliance with fundamental principles such as reasonability, proportionality, natural justice, separation of powers, and legal certainty.

The petition pointed out provisions of the bill that provide undue discretion to the subject minister, allowing exemptions and specifying persons who may engage in money lending without a license from the Microfinance and Credit Authority.

Meanwhile a petition has been filed at the Supreme Court by Transparency International Sri Lanka, challenging the bill claiming that the bill lacks compliance with fundamental principles such as reasonability, proportionality, natural justice, separation of powers, and legal certainty