Sri Lanka’s microfinance institutions are to come under a dedicated authority which will be set up to regulate these institutions and make their supervision more effective, a senior official of the Finance Ministry said.
The Cabinet of Ministers recently granted approval to instruct the Legal Draftsman to draft the Micro Finance Bill to set up the Microfinance Regulatory and Supervisory Authority. The proposed authority will be responsible to license/register, regulate and supervise institutions (Companies, Non-Governmental Organizations Co-operative Societies and societies which are registered under the Companies Act, Voluntary Social Service Organizations (Registration and Supervision) Act, that carry on the microfinance business.
An earlier attempt was made to regulate micro-finance institutions in 2006 through the Central Bank but the plan was abandoned because of the need of a separate, independent authority, he added.
The official noted that the growth of microfinance in Sri Lanka is hampered by the lack of a consistent regulatory and supervisory framework, governance issues, and lack of technology and shortage of skilled personnel.
The microfinance sector in Sri Lanka consists of a diverse range of institutions which do not fall under the purview of a single authority and there is currently no single and up-to-date database on these institutions, he added.
Samurdhi Banks, Cooperative Rural Banks and Thrift and Credit Cooperatives, Regional Development Banks and other institutions from the ‘formal’ financial sector have ventured into microfinance. Several non governmental organizations which have grown very rapidly in the past decade are also operating micro finance schemes without any regulatory or supervisory controls. This was the reason for a dedicated regulatory authority, he said.