The passage of the Microfinance and Credit Regulatory Authority Bill in Parliament on 4 March has sparked sharp criticism from grassroots organisations and activists. 

While the government hails the new law as a step toward licensing and supervising Sri Lanka’s under‑regulated microfinance and moneylending sector, groups such as the Yukthi Collective argue it will deepen the burden on rural women borrowers rather than provide relief. 

They warn that the Act, shaped by international loan conditionalities, overlooks debt justice, fails to mandate women’s representation in the new Authority, and risks dismantling community‑based lending networks that have long served as lifelines for vulnerable households.

Full statement: 

The Microfinance and Credit Regulatory Authority Bill was passed into law by the Parliament of Sri Lanka on 4 March. According to Deputy Minister of Finance and Planning Dr. Anil Jayantha, the main object of the Act is to establish an Authority to “license and supervise the under-regulated microfinance and moneylending sector, aiming to protect borrowers from exploitation and ensure financial stability”.

However, the Yukthi Collective is saddened and 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), will now add to their unbearable weight.

The new Act, as virtually all legislation enacted by Anura Kumara Dissanayake’s government, is a legacy of the anti-working-class Ranil Wickremesinghe regime. It evades the root causes of the microfinance trap and ignores debt justice for women borrowers.

It fails in understanding the connections between household debt and public debt. The vicious cycle of national debt is sustained by a lack of growth in economic activity because of poor access to affordable credit.

It 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?

System Change:

Millions of indebted households voted for the NPP with hope and expectation of ‘system change’. But instead of honouring its manifesto promise to them, the government has let them down in the law-making process; as well as the focus and substance of the new Act.

It is appalling that NPP parliamentarians, including some of its women members, appear not to have read and understood the bill they enacted into law, nor spoke to the rural credit community providers in their electorates for their views.

Predatory lending exists in the formal and informal sectors. Within this ecosystem, the Act fails to understand, identify, and prohibit predatory lending and recovery practices. It is a cover for the Central Bank’s failure to properly regulate ‘Licensed Finance Companies’ in the interests of citizens.

The biggest offenders are the big finance companies, in which some parliamentarians are deposit-holders. Therefore, some lawmakers benefit from excess profitmaking through exploitative practices, at the expense of poor mostly rural women.

Where law reform should discipline the bullies and thugs in credit delivery, it will instead wipe out, through over-regulation, community-based and managed lenders such as death donation societies, farmer associations, and urban and rural women’s collectives, which have been a lifeline for vulnerable working-class women and a defence from harmful recovery practices.

Structural Adjustment Programmes:

The motivation for this new law are the market- and capital- friendly structural reforms insisted by International Financial Institutions; not the concerns and needs of those at the mercy of predatory lenders.

From the Microfinance Act 2016, to the 2023 version of the Ranil Wickremesinghe regime, the Asian Development Bank (ADB) through its loans has been a promoter of these regressive reforms.

The 2026 Act, with some changes suggested by the Supreme Court in 2024 and hardly any of the changes demanded by affected communities, has been moved forward by the NPP government in line with ADB loan conditionalities.

The path of de-regulation for banking, finance, trade, and investment; and over-regulation of poor people’s savings and credit institutions, smacks of the bias to big capital, which the NPP in opposition once criticised.

Reforms needed:

The financial and banking reforms we want to see are to make credit from state banks and public funds accessible and affordable to women producers in agriculture and micro and small business operators; with decent wages and social protection for workers; that improve household opportunity for a dignified livelihood and decent lives. (Newswire)

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Plans to introduce a new legislative framework aimed at regulating microfinance institutions operating within the country were unveiled by Minister of Justice, Prison Affairs and Constitutional Reform, Wijayadasa Rajapakshe.

Expressing deep concern regarding the unregulated status of certain microfinance entities, Minister Rajapakshe emphasized the necessity for decisive measures. 

He underscored the intention to establish an independent regulatory institution, distinct from the Central Bank, dedicated to the oversight and effective regulation of microfinance entities.

“One pressing issue contributing to economic challenges is the unregulated proliferation of microfinance institutions, perceived as a substantial concern in the country. The absence of legal frameworks and regulatory oversight, coupled with the lack of registration with the Central Bank, has created an environment where individuals find it challenging to secure loans through conventional financial institutions due to their stringent rules. Consequently, many turn to microfinance institutions, exacerbating the existing economic predicament.

“To address this concern, there is a pressing need to establish a dedicated regulatory body, separate from the Central Bank, to oversee and govern microfinance institutions. Efforts are underway to introduce comprehensive laws aimed at regulating these entities and mitigating the potential adverse effects they pose to the country’s economic stability. The goal is to instate a regulatory framework that ensures responsible and accountable practices within the microfinance sector, thereby contributing to the overall economic well-being of the nation,” he said.

Minister Rajapakshe made these remarks on Monday (Dec 04) during a Press Briefing at the President’s Media Centre (PMC).

The minister further commented that the Ministry of Justice presently oversees the operational responsibilities of 21 institutions, encompassing a diverse range of subjects, including law enforcement and law reform. With a caseload exceeding 1.1 million cases within the courts in the country, concerted efforts have been undertaken in recent times to mitigate delays in case adjudication.  

Substantial measures have been implemented to address the backlog and streamline the judicial process, with a particular focus on the establishment and operation of conciliation boards aimed at facilitating the expeditious resolution of select cases.

Minister Rajapakshe further stated that globally recognized expedited methods for resolving criminal cases stand in contrast to our nation’s outdated legal framework, resulting in prolonged durations for case resolutions. This delay in criminal proceedings represents a substantial issue, jeopardizing the administration of justice and leaving all parties involved without timely recourse.

To address this challenge, a draft law aimed at expediting the resolution of criminal cases is currently under development and is slated for submission to Parliament in January. In advanced jurisdictions, there is a paradigm shift towards non-custodial measures for individuals involved in minor offences. 

Recognizing that incarceration, in many instances, is not the most suitable recourse, the new legal framework being proposed aims to explore alternatives. 

Notably, some individuals find themselves incarcerated due to societal oversights, and the proposed legislation acknowledges this by providing avenues for release on bail conditions. This approach aims to balance societal concerns and individual liberties, fostering a more nuanced and equitable criminal justice system.

The Office of Missing Persons currently manages a caseload of approximately 14,000 complaints. Upon assuming duties of this Ministry, only 62 complaints had undergone investigation. Presently, we have successfully concluded investigations for 4,795 complaints, reflecting a substantial improvement in case resolution. Notably, all outstanding complaints lodged with the Office of Missing Persons are slated for resolution by the coming year.

Furthermore, to fortify and enhance the efficiency of the judicial process, a comprehensive set of eight new bills is set to be submitted to Parliament.

Efforts are underway to establish a reconciliation society within each village, where government officials and politicians do not play a direct role. The activities of these societal initiatives, referred to as reconciliation societies, are guided by the preferences of elders and religious leaders within the respective villages. The responsibilities encompass the independent execution of tasks such as infrastructure development, including road construction and provision of electricity, rendering political involvement unnecessary.

The villagers take charge of organizing religious festivals, sports events and cultural celebrations, fostering a sense of community ownership and participation. The overarching vision is to seamlessly integrate each Grama Seva Division into a unified network, operating independently from external interference. The reconciliation society is entrusted with safeguarding the welfare and interests of the village, thereby ensuring the preservation and well-being of the community.

Presently, widespread discourse revolves around the state of the country’s economy, which has been adversely affected by various factors. The extensive toll on lives and property incurred during Prabhakaran’s war and the destructive actions of the JVP, including the burning of buses, transformers and over 25 courts, have significantly impacted the economic landscape. 

The repercussions of these incidents continue to reverberate, influencing the nation’s economic trajectory, he added. (NewsWire)

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