The losses incurred from writing off interest on microfinance loans granted to women qualifying for debt relief under a new Government scheme will have to borne by the respective finance companies or microfinance institutions, the Cabinet decided this week. It was not immediately clear how much these losses would amount to. Finance Minister Mangala Samaraweera [...]

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Lending companies to bear losses incurred by writing off interest on microfinance loans

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The losses incurred from writing off interest on microfinance loans granted to women qualifying for debt relief under a new Government scheme will have to borne by the respective finance companies or microfinance institutions, the Cabinet decided this week.

It was not immediately clear how much these losses would amount to. Finance Minister Mangala Samaraweera presented a Cabinet paper which proposed the granting of microfinance debt relief to women in the drought-affected districts of Trincomalee, Ampara, Batticaloa, Jaffna, Mullaitivu, Kilinochchi, Vavuniya, Mannar, Kurunegala, Puttalam, Anuradhapura and Polonnaruwa. Women who obtained non-consumption microloans amounting to Rs 100,000 and below can apply for a complete write-off of interest and capital payments, it said.

“The total due interest amount shall be written off by the lenders and loss incurred should be borne by the respective finance companies or microfinance institution,” the Cabinet paper said. “The capital component will be written off by the Government and the loss be reimbursed to the finance company or microfinance institution by the General Treasury within a five-year period in equal semi-annual instalments.”

The Government will allocate Rs 500 million for the balance period of this year to initiate this scheme, the Cabinet paper proposed. After writing off the loans under the debt relief programme, several actions are proposed to sustain the initiative.

First, persons who benefited from the programme will be prioritised for a new loan facility from interest subsidy loan schemes implemented under ‘Enterprise Sri Lanka’ with a maximum two years of grace period. Launched in June this year, 15 different loan categories have been proposed under this new credit scheme in areas of agriculture, fisheries and small and medium enterprises.

Second, during the grace period of two years, the capital need not be repaid and it will provide space for heavily indebted persons to rebuild livelihoods and increase income streams. Finally, persons who benefited from debt relief are also to be prioritised in Government subsidised programmes and other rural livelihood schemes implemented through cooperative societies.

The proposal also introduced an interest cap of 30 percent a year for future microfinance loans by finance companies registered with the Central Bank of Sri Lanka (CBSL) and microfinance institutions registered with the Lanka Microfinance Practitioners’ Association. This is to be monitored by the CBSL and the Ministry of Finance.

Further, social mobilisation and awareness campaigns will be launched throughout the country to ensure people do not take loans above 30 percent a year from microfinance companies and institutions, the Cabinet paper said.

The request to write off the capital component of eligible borrowers must be submitted by the respective companies and institutions to the General Treasury in consultation with the respective District Secretariats.

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