Probe into rapid expansion of unregulated co-operative banks
Financial institutions mushrooming in the island without a proper oversight as co-operative banks with branches in several regions are to be scrutinised and regularised, Trade and Co-operative Minister Wasantha Samarasinghe disclosed in Parliament recently.
He blamed provincial councils and some governors of provinces for approving the setting up of such irregular finance companies taking deposits from rural masses. The government has already taken steps to promptly introduce new laws to regulate the co-operative sector including the cooperative banking system.
The Trade and Co-operative Ministry is probing some financial institutions such as Saubhagya Co-operative Bank Ltd (SCD) of the North Central Province and Anuradhapura District Rural Capital Development Co-operative Society Ltd (RCD) started in recent years as ‘co-operative banks’ which are opening branches rapidly without a proper oversight,
These institutions, while performing quasi-banking functions such as accepting deposits and issuing loans, are not licensed under the Banking Act and are therefore not subject to Central bank supervision.
Instead, they operate under the Co-operative Societies Law No. 5 of 1972, and are monitored by the Department of Co-operative Development under the Ministry of Trade, Commerce and Food Security.
This legal framework allows for the registration of financial co-operatives at district and provincial levels, with a focus on community-based development, self-financing, and microcredit lending, an official of the Finance Ministry said.
There is a large number of Thrift and Credit Co-operative Societies, which are also categorised as co-operative banks as they perform banking functions at grassroots level. There are around 7,000 rural financial institutions and a significant number of significant number of Co-operative Rural Banks (CRBs) with 1,933 branches countrywide.
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