News
New authority to regulate microfinance, non-banking lenders
View(s):A bill to regulate non-banking lending institutions is to be introduced, with penalties for non-compliance including fines of up to Rs five million, up to five years’ imprisonment, or both, upon conviction in a magistrate’s court.
The proposed Microfinance and Credit Regulatory Authority Bill was published by President Anura Kumara Dissanayake in his capacity as Minister of Finance, Planning and Economic Development.
The proposed bill not only aims to protect the customers of the moneylending business and the microfinance business but also seeks to repeal the Microfinance Act, No. 6 of 2016.
The Microfinance and Credit Regulatory Authority the bill seeks to set up is vested with powers to accept donations and grants from external sources in addition to the Treasury’s grant of Rs 100 million to cover its expenses.
The government’s move comes amid allegations that several unregistered or informal money-lending businesses are charging exorbitant rates ranging from 1.5 per cent (monthly) to 310 (per annum).
The Authority is tasked to coordinate with the Central Bank and other state agencies that regulate and supervise registered co-operative societies, Samurdhi and community-based banks, banking societies, farmers’ organisations, stockbrokers and insurance businesses that protect customers of licensed moneylenders and licensed microfinance institutions.
Its seven-member board of directors will include the Treasury Secretary or Deputy Secretary and a Central Bank deputy governor in charge of financial system stability.
The Registrar or Deputy Registrar of the Voluntary Social Service Organisations will also be included in the board along with four members appointed by the Finance Minister. They will serve a three-year term.
In terms of the powers vested with the Authority, it can conduct investigations following a complaint lodged against a licensee and call for an inquiry. During the inquiry, no lawyers will be permitted to make a representation on behalf of any party summoned by the Authority, the bill reads.
The Authority is also required to maintain a database of complaints received by customers or licensees and analyse such complaints to identify current and emerging issues in the moneylending business and microfinance business, patterns of such issues, recurrence of the same issues and such other similar concerns as the Authority may consider necessary.”
In the event where a person or a board of directors of a company is under investigation, an Assistant Superintendent of Police (ASP) can make an application to a magistrate to impound the passports of those individuals.
Last month, a Parliamentary Oversight Committee—the Ministerial Consultative Committee on Rural Development, Social Security and Community Empowerment—instructed officials to take steps to collect data on individuals who are unable to repay microfinance loans in four Divisional Secretariat Divisions in the districts of Nuwara Eliya, Batticaloa, Polonnaruwa and Colombo.
In the war-affected Northern and Eastern provinces, where thousands of families are in a debt trap, local bodies have stepped up their regulatory moves within their mandate to take legal action against informal moneylending companies—or loan sharks—who charge exorbitant interest rates and intimidate borrowers and against loan company agents who solicit sexual bribes.
According to the Lanka Microfinance Practitioners Association, a collective of microfinance companies, only 34 institutions have been registered with the organisation.
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