• To establish a dedicated regulatory body distinct from Central Bank

Sri Lanka is considering the development of comprehensive new laws to regulate the microfinance institutions and is also contemplating on the establishment of a dedicated regulatory body for overseeing their operations.

Justice, Prison Affairs and Constitutional Reform Minister Wijayadasa Rajapakse yesterday unveiled the government’s plans to introduce a new legislative framework to regulate the microfinance institutions operating within the country.

Rajapakse revealed this during a press conference held at the Presidential Media Centre, yesterday.

Expressing deep concern regarding the unregulated status of certain microfinance entities, he emphasised the necessity for decisive measures. 

He underscored the intention of the government to establish an independent regulatory institution, distinct from the Central Bank, dedicated to the oversight and effective regulation of microfinance entities.

The Central Bank currently functions as the regulatory authority for the country’s financial sector, overseeing the operations of both the banks and non-bank financial institutions.

There is a variety of institutions providing microfinance in Sri Lanka, such as the licensed banks, licensed finance companies, co-operative rural banks, thrift and credit co-operatives societies and other community-based organisations, microfinance companies and non-governmental organisations that engage in microfinance business.

Some of these institutions are regulated under different authorities. The licensed banks and licensed finance companies are regulated by the Central Bank. The co-operative rural banks and thrift and credit co-operatives societies are regulated by the Cooperative Development Department.

However, there are many microfinance providers that are not under the purview of a regulatory authority.

For over a decade, several attempts were made to enact legislation to regulate the unregulated institutions in the microfinance sector in Sri Lanka. 

Finally, Parliament enacted Microfinance Act, No. 6 of 2016 (the Act), which came into effect on July 15, 2016. The act provides for the licensing, regulation and supervision of the companies carrying on microfinance business, which are called licensed microfinance companies (LMFCs). 

The LMFCs would be directly regulated by the Monetary Board of the Central Bank of Sri Lanka. The act provides for the registration of microfinance non-governmental organisations (MNGOs) registered under Voluntary Social Services Organisations (Registration and Supervision) Act, No. 31 of 1980 (VSSO Act), by the Registrar of Voluntary Social Service Organisations.