Finance companies reeling due to non-reimbursement of micro loans
Majority of finance companies’ engaged in micro financing are still eagerly waiting for the reimbursement of massive amounts written off by them as non-consumption loans up to Rs. 100,000 to drought-affected women in selected districts, CEOs of finance companies complained.
This action has been taken by the finance companies on the directions of the Finance Ministry in accordance with a cabinet decision in 2018, they pointed out.
Though the previous Government stated that it will pay the written-off debts within a 3-year time period, there was no Treasury guarantee for it to happen. On top of that finance companies are paying a tax for an income they do not possess, they added.
According to these officers, total loans less than Rs. 100, 000 each given to female borrowers in the districts mentioned in the Cabinet paper come to Rs. 42 billion but the government has allocated only Rs. 500 million for the reimbursement.
The 12 districts that were affected by the drought at that time were Trincomalee, Ampara, Batticaloa, Jaffna, Mullaitivu, Kilinochchi, Vavuniya, Mannar, Kurunegala, Puttalam, Anuradhapura and Polonnaruwa where cultivations were affected consecutively for five seasons.
The reimbursement was made to some of the finance companies but the majority is still to receive cheques for reimbursement of the micro finance loans written off by them.
“How can the government resolve a Rs. 42 billion issue with only Rs. 500 million?” asked one finance company CEO.
He accused the previous government of not making a proper estimate for this exposure before making the decision.
The Treasury will reimburse the loss incurred by the microfinance companies for having written off the capital component, according to the Cabinet paper.
However the Treasury is now not in a position to settle this matter under the present financial situation, a senior official of the ministry said.
Imran Nafeer, President of Lanka Microfinance Practitioners’ Association – LMFPA told the Business Times that according to his knowledge the previous government has reimbursed some of the written off loans of registered finance companies.
He noted micro finance loans taken by many distressed women in the 12 districts had been written off by the finance companies.
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