Sri Lanka is to bring in the new Microfinance bill after a delay of 3 years amidst reports of businesses providing microfinance credit with over 360% interest as the Government tries to curb licensed credit providers, State Minister of Finance Shehan Semasinghe.
Tabling the Microfinance and Credit Regulatory Authority Bill at Parliament on Friday (12), he said that according to the bill, no business, collective or individual can lend microfinance credit without a licence from the regulator.
The State Minister said that according to a survey done by the Samurdhi Department in the Anuradhapura district, 95% of the borrowers who are struggling with microfinance debt were women. At the same time, the majority of the credit was taken for consumption purposes.
“They don't know what they are signing, their financial literacy is very low. Microfinance credit issues are gradually moving towards a big crisis,” he added.
According to the Finance Ministry, there are about 11,000 microfinance institutions in Sri Lanka as of 2023 November out of which only 4 have registered with the Central Bank.
Semasinghe said that the Government under former President Gotabaya Rajapaksa tried to bring in the Microfinance bill in 2021 to solve the issues in microfinance after bringing in all the relevant parties such as the Central Bank of Sri Lanka, the Finance Ministry and Lanka Microfinance Practitioners’ Association, which has a membership of 47 microfinance businesses.
“However, it was not able to be brought to Parliament due to the instability that happened in the country, especially due to the political instability,” he said.
He said that through the new Act, the Government expects to formulate the regulatory framework to regulate businesses that provide money on credit and Microfinance businesses while attention has also been given to the inclusion of businesses that provide credit online.
According to the bill, the Board of the Authority shall consist of the Secretary to the Treasury or his representative who shall be a Deputy Secretary to the Treasury nominated by the Secretary to the Treasury who shall be appointed as the Chairperson, the Deputy Governor of CBSL in charge of financial system stability and the Registrar of Voluntary Social Service Organisations or his representative not below the rank of a Deputy Registrar of Voluntary Social Service Organisations.
Also, four members appointed by the Minister of Finance shall be appointed to the said Board where two members who shall possess academic or professional qualifications and have experience in the fields of banking, finance, microfinance, accounting, law, administration or any other relevant discipline; and two other members nominated by the Governor of CBSL who shall possess academic or professional qualifications and have experience in the fields of banking, finance, microfinance, accounting, law, administration or any other relevant discipline.