“CB makes collateral deposits compulsory for LMFC leading”

This is with reference to an article in last week’s Sunday Times Business Section headlined “CB makes collateral deposits compulsory for LMFC leading” where it is stated that microfinance companies in lending loans should maintain a saving deposit by that particular client as collateral and release it after the loan is paid.

My view based on experience is that people who get the service of microfinance companies are generally from the "Non bankable sector" in Sri Lanka. It is well known that it is really difficult for them to commit to a saving deposit and even so, if they have such funds, what is the purpose of seeking funds from microfinance companies?

Global microfinance pioneer, Muhammad Yunus of Bangladeshi Grameen Bank fame, practiced lending through a process where a group of three is formed and two women sign as the signatories to a loan given to the third woman. If there is any default, the signatories had to pay the bank and it is said that the success rate of the loan repayment is 99 per cent in Bangladesh as well. Further this is the method that has been practiced by prominent micro finance companies in Sri Lanka and in our village of Warakapola as well.

Further it had been mentioned that the Central Bank is in the process of drafting the Microfinance Act to regulate the industry. In that context it is really questionable as to why the Central Bank is coming out with an illogical microfinance direction.

Kapila Gabadage

LETTER