The Government is to address a debt trap in the North through a new Microfinance Act.
Speaking in Jaffna today, Finance Minister Mangala Samaraweera said that the new Microfinance Act that is being drafted would ensure more responsible lenders will be able to operate and consumers will have access to better credit.
The new Act will also incorporate financial consumer protection measures. Ongoing efforts to improve financial literacy, led by the Central Bank, will be expanded with renewed vigor, he said.
The Minister said that Microfinance is an effective mechanism to bring people out of poverty, if the industry is properly regulated.
“The missing legislation and regulations are now being developed, and we hope that we will not see a repeat of debt cycles of this nature. I hope these initiatives will ensure that women in our society are secure and economically empowered through other development efforts such as the Enterprise Sri Lanka Loan Scheme and Gamperaliya Rapid Rural Development Programme,” he said.
The Minister noted that unethical practices such as charging excessive interest rates from consumers, and using unnecessary coercion techniques have brought about many people, especially women, severe economic hardships and psychological distress.
“Lenders have in many cases given loans that they know the borrower simply cannot afford. In many cases, a single household would take multiple loans to pay off previous debts, rather than establish or improve existing businesses,” he said.
He also noted that the Government of Sri Lanka has taken an initiative to write-off nearly Rs.1400 Million in capital and interest costs of more than 45,000 women borrowers.
Thus, those loans, whose capital costs were less than Rs.100,000 and were outstanding for more than three months were selected to be written off.
However, he said the Government is well aware that the debt-write off is a short-term solution to a much larger problem. Furthermore, he said it is not feasible to have multiple debt write offs of this nature.
To bring about a long-term solution, Samaraweera said that the Government is committed to introduce the necessary legislation and regulation to govern the microfinance industry. (Colombo Gazette)