Amendments to Microfinance Act to rein in loan sharks

 From left: Finance State Minister Eran Wickramaratne, Finance and Mass Media Minister Mangala Samaraweera and Finance Ministry Senior Advisor Mano Tittawella
Pic by Nisal Baduge

• Govt. to introduce amendments to act to make it compulsory to all microfinance practitioners 
• Mulls setting up microfinance regulatory authority
• Some women borrowers forced to repay debt with sexual favours: Mangala 

By Nishel Fernando 

Finance and Mass Media Minister Mangala Samaraweera yesterday vowed to bring in new amendments to the Microfinance Act of 2016 before the next budget, to resolve the rural indebtedness, which has become “a national tragedy”, caused by certain errant microfinance companies. 

“The micro credit issue … I see it as a national tragedy, which is very huge. It needs to be addressed in several spheres and layers,” Samaraweera told reporters in Colombo.

He said that as an urgent step, the government has allocated approximately Rs.1 billion to write-off microfinance loans up to Rs.100,000 taken by 75,000 women in drought-affected 12 districts and who are three months in arrears as of June 30, 2018. Responding to media queries, Finance Ministry Senior Advisor Mano Tittawella admitted that the situation remains much complex as women, particularly in the North, have taken multiple loans to pay-off the existing loans.

“We are fully aware of the people who particularly in the North and East have taken one loan to pay another loan. Therefore, in the books, it doesn’t appear as arrears. Unfortunately, at this stage, we can’t address all of those until we get into more grips with the microfinance situation,” he noted.

Tittawella said that the government plans to make the Microfinance Act of 2016 applicable to all microfinance practitioners and is considering setting up a regulatory body for the industry as a long-term measure.

“As the minister stated, the way to do that is to bring amendments to the Microfinance Act and we are going to make it compulsory. It’s a voluntary act at the moment. 
We are also seriously considering having a microfinance regulatory body, which will look into all of these things and then give directions, which are legally binding,” he elaborated.

However, Tittawella said that the implementation of these measures is likely to take another five to six years.

Samaraweera said a special committee has been appointed to look into this matter, following the consultations with the Lanka Microfinance Practitioners’ Association.
According to him, 70-90 percent of rural population in the North, East, North West and North Central rely on micro credit, given the limited access to credit from banks, at an exorbitant interest between 40-220 percent.

Samaraweera stressed that women have become particularly vulnerable to loan sharks. 

“We have information that certain young women are being forced to pay debt with sexual favours. It’s a very sad, tragic and desperate situation in which the government felt it had an inherent moral duty to intervene. So, that’s why we took a historic step of writing-off debt of nearly 75,000 women at the first phase,” he said.
He noted that letters would be issued to most borrowers confirming the settlement of their loans by finance and microfinance intuitions by September 1, this year. 
The Finance and Mass Media Ministry has given an assurance to settle the loans to the relevant institutions and the capital component would be paid to them in biannual instalments, within three years.