Microfinance Act amendment to be expedited | Sunday Observer

Microfinance Act amendment to be expedited

The Government will expedite the amendment of the Microfinance Act to enforce stringent regulation of microfinance institutions across the country, to prevent people from falling further into debt traps that lead to serious social and economic problems among families.

The current Act confines regulation to institutions which only accepts deposits and not those which lend funds. Following the Amendment, there will be wider powers vested in the regulator to monitor all lending and deposit accepting institutions in the country.

“We want to bring in all lending intuitions in the informal sector which have not been regulated so far under the supervision and regulation of the Central Bank and thereafter prevent lending institutions mushrooming by maintaining a registry of microfinance institutions in the country,” Senior Advisor to the Ministry of Finance and the Treasury Mano Tittawella said. The need to amend the Microfinance Act arose following reports on the appalling state of low income families in the Northern and Eastern Provinces who were forced to seek high interest loans to revive their livelihood and make a living after being battered for over three decades by the war.

Finance Minister Mangala Samaraweera said, the microfinance issue in the country is a national tragedy and it will be addressed in stages.

“The gravity of the indebtedness of the borrowers is so much that certain women in the North and the East have tried to commit suicide while some lenders have threatened and even caused damage to the properties of borrowers,” the Minister said.

Accordingly, the Government will offer relief to 75,000 women in 12 drought affected areas who had sought loans from microfinance companies and microfinance institutions (MFIs) who are members of the Lanka Microfinance Practitioners’ Association and who are in three months of arrears as of June 30, 2018.

The relief program is estimated to cover women in drought hit districts in Trincomalee, Ampara, Batticaloa, Jaffna, Mulaitivu, Kilinochchi, Vavuniya, Mannar, Kurunegala, Puttalam, Anuradhapura and Polonnaruwa.

The Government through the program aims to write-off loans worth over Rs. 1 billion of microcredit provided by both state and private sector microfinance institutions.

When asked about how the program would address the problem of those who had obtained multiple loans the Minister said only one loan, (the largest), of up to Rs. 100,000 will be settled through the relief measure.

Microfinance companies and micro financé institutions will be required to send a list to the Treasury of all loans which have an arrearsof three months as at 30 June this year. The list will be verified by the Government Agent (AG) and then sent back to the Ministry of Finance which will then finalise the list recommended by the AG and direct finance companies to settle the loans with an assurance that the capital will be paid in bi-annual installments in three years.

The interest outstanding will be written off by finance companies and microfinance institutions.

The Minister said a MoU will be signed by participating finance companies and microfinance institutions with the Finance Ministry regarding the project. The MoU stipulates that finance companies must only levy a 35 % annual interest rate for all future microfinance loans. “This is an initial step to bring relief to women headed households in drought-hit areas who have not been able to service high interest loans being forced on them by loan sharks,” the Minister said. Meanwhile, the Finance Ministry has commenced providing concessionary loans to young entrepreneurs and SMEs through the Enterprise Sri Lanka program.

“We have not burdened the people as the previous regime under Mahinda Rajapaksa who imposed 150 % tax on vehicles prior to 2014 causing unbearable suffering to masses. The former government imposed a Rs. 1.65 million tax on Waggon Rs while today it has been reduced to Rs. 125million. We will maintain taxes on vehicles at a rate below the amount taxed by the Rajapaksas,” Samaraweera said.

However, the Minister said he was not aware of a move to raise the salary of MPs, deputy ministers and ministers. 

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