MONLAR joined the National Collective of Community-Based Savings and Credit Services Providers in denouncing the newly proposed Regulatory Authority for Microfinance and Credit, alleging that its over-reaching mandates would criminalize community savings and credit initiatives—with catastrophic consequences for rural women, fishing communities, and peasants.
“Promoted under the guise of regulating the unregulated and addressing the microfinance crisis, the Credit Regulatory Authority extends a set of overarching regulations imitating the Banking and Finance Act on community-based savings and credit providers,” a press release issued by the National Collective on the 6th of February reads.
These community-based savings and credit initiatives address the credit needs of low-income women, peasants, fishers, and others excluded from the formal finance sector. Any absence of such community-based initiatives will provide an avenue for predatory microfinance companies to extend their businesses and abusive loan recovery practices to a highly vulnerable community. Over the years, the abusive practices of private lending firms in rural Sri Lanka have repeatedly made headlines. “The Authority wields discriminatory control over community-based initiatives that are engaged in not-for-profit savings and credit services, while creating an open field for profit-driven Licensed Commercial Banks and Licensed Finance Companies,” the press release reads.
It further notes, “the Credit Regulatory Authority is tasked with a range of activities from issuing an annual license, determining educational and professional qualifications of the officials of community-based initiatives, interest rates, deposits, credit mechanisms, the ratio of Non-Performing Loans to the total loan portfolio, investigating complaints, providing guidelines for consumer protection to conducting credit counseling to borrowers. Registered Community-based initiatives are commanded to annex ‘Microfinance’ to their name […] and are required to take a license as a Microfinance Institution. Licensed Commercial Banks and Licensed Finance Companies are exempted from regulation.”
The Central Bank of Sri Lanka and the Government justify the exemption under the pretext that Licensed Commercial Banks and Licensed Finance Companies are stringently regulated. But the collective alleges that “the regulations issued by the Central Bank in August of 2023 do not contain a single regulation on microfinance. The interest rate cap at 35% introduced in December 2018 was also removed in June 2022.”
Victims of predatory microfinance practices and community-based initiatives have come together to form the National Collective of Community-Based Savings and Credit Services Providers to advocate the interests of all practicing community credit and savings across the country. Starting from challenging the Bill in the Supreme Court, the National Collective also mobilizes Members of Parliament, seeking their support to defeat the Bill.
The demands of this collective include; excluding Licensed Finance Companies from engaging in microfinance lending, conducting a debt audit and abolishing odious microfinance debt, strengthening community-based initiatives engaged in credit and saving services, revitalizing Sri Lanka Savings Bank to finance these community initiatives, stopping the criminalization of debt, stopping abusive practices of loan recovery, and creating a legal protection mechanism for borrowers.