Exploiting the downtrodden
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With the West Asian conflict swirling around us, in addition to other distractions, some serious stuff confronting sections of the population seems to have been conveniently put on the back burner. One such issue is the Microfinance and Credit Regulatory Authority Act 2026 passed in Parliament on March 4, which Deputy Minister of Finance and Planning Dr. Anil Jayantha has said is aimed at protecting borrowers from exploitation and to ensure financial stability.So does it prevent the exploitation of the downtrodden? The intention of the Act is to regulate the money lending business and the microfinance business; to provide protection to the customers in the money lending business and the microfinance business but there is a serious contradiction.
While the law says a person shall not carry on a money lending business except with a licence granted by the Authority, it exempts banks, finance companies and other specified, registered entities from securing this licence. Thus, smaller finance companies and moneylenders, registered under another law can do what they please – allegedly harass and intimidate borrowers. The status quo remains. The principle of fairness has been thrown out of the window!
Speaking to Attorney-at-law Ms. Swasthika Arulingam, who has done a lot of work in this area, serious misgivings arise about this new law. It seems far from being perfect. She says the law doesn’t define community credit schemes where borrowers get together and have their own scheme to avoid the nasty moneylenders and by nature of being an informal scheme, it cannot be licensed.
These informal schemes also ensure the money circulation is retained in the village and doesn’t go out, unlike when borrowing from an outside source. The harassment, coercion and intimidation will continue as the traditional moneylenders are outside the purview of this Act. In some cases, borrowers have been subject to sexual abuse and committed suicide, unable to withstand the pressure from moneylenders.
Exploitation often happens when debt collectors may delay coming to the village to collect the dues. And they add the interest per day for the days they did not turn up through no fault of the borrower. Generally, the lending process is to get 3-4 people to guarantee a loan and if repayment doesn’t happen or is delayed it is incumbent on the guarantor/s to pay the loan.
Companies are reluctant to go to court in the case of repayments due to costs and then put pressure on the borrower. Since there is no collateral in such lending, lenders don’t assess the ability of the borrower to repay the loan and often the borrower falls back on the repayment schedule.
According to the law, licence holders are prohibited from making any false, misleading or deceptive statement to any customer or conceal any material fact from a customer; fraudulently induce or attempt to induce any person to enter into a loan agreement or any other agreement to provide financial services or to agree to any term or condition; discriminate any segment of population based on religion, gender or any other material factor relating thereto; exert undue influence in lending money to any person or when recovering any such money from such person; or harass, threaten, intimidate or humiliate customers and their close relations in carrying out routine collection of loan instalments and recovery of loans or any activity prohibited by the directives issued under section 33.
All this is fine but unfortunately this doesn’t apply to the ‘culprits (moneylender)’ as they are not in the category of a ‘licence holder’ and are, thus, absolved of any prescribed punishment.
It was time to see what the trio was up to. So, going to the kitchen to fetch a mug of tea, I heard the trio – for the second successive week – discussing the raging West Asian conflict. “Magey meda peradiga weda karana godak yaluwo kanassallata pathwela inney uddaya gana (Many of my friends working in the Middle East are worried about the war),” said Kussi Amma Sera. “Kavuruth danney nae, mae uddey kavada ivara weida kiyala (No one knows when this war will end),” noted a worried Mabel Rasthiyadu. “Godak kattiya marenawa haema dama eth loketa ganak nae wagey (So many people are being killed daily and the world doesn’t care),” added Serapina.
As I was going back to my computer to resume writing this column, Ruwanputha, the young economist, called on the land line (rarely do I get calls on this line). “With the war escalating, it’s anybody’s guess as to what level oil prices would reach,” he said. “Well there seems to be some understanding among oil producers to increase production to bring down prices (oil prices rose to US$ 120 a barrel, fell but rose again),” I said. “Rising oil prices will impact on every essential commodity and Sri Lanka needs to be prepared for any eventuality,” he said.
On today’s subject, another institution, the Yukthi Collective said it was disappointed that a government which pledged to take “measures to alleviate the burden of predatory microfinance loans with high interest rates on women (NPP Manifesto, 2024: Page no. 44)”, was now adding to the unbearable weight of borrowers.
In a statement, it said the new law evades the root causes of the microfinance trap and ignores ‘debt justice’ for female borrowers. Yukthi said the law fails to make equal representation of women mandatory in the new Authority. “If representatives of women borrowers and their self-run organisations are not present in the regulatory body, how will its members know of their lived experiences and make decisions that value women’s unpaid and paid contributions to sustaining life?” Yukthi asked.
In a recent article, Anura Atapattu, an expert on microfinance said the new law provides the structure Sri Lanka’s microfinance sector has long needed: a framework for accountability, transparency and social responsibility. But he says legislation alone cannot transform the sector.
“For microfinance to fulfil its developmental promise, these institutions must go beyond credit. They must extend a guiding hand, helping borrowers convert loans into livelihoods, and livelihoods into lasting prosperity,” he said. The focus of this new law is to alleviate the sufferings of small-time, village borrowers but at the end of the day, it falls woefully short of this principle and ‘noble’ intention.
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