CB to link microfinance companies in CRIB

• Multiple lending has caused serious concerns in microfinance sector

Sri Lanka’s banking and finance watchdog, the Central Bank, confirmed it is in the process of linking microfinance companies to the Credit Information Bureau (CRIB) by the end of the year as multiple lending to the same borrowers has raised concerns in the microfinance sector.

Formerly Practice Leader for Microfinance at the Asian Development Bank (ADB), Dr. Nimal Fernando 

This was said at a panel discussion organised by K. Seeds Investments. 



It was titled ‘Magnifying Microfinance: The Way Forward’, Central Bank Senior Assistant Director Ajana Liyanapatabendi said the Central Bank will link microfinance companies also in the CRIB to collect data.

“We are expecting to link the microfinance companies also in the CRIB in the future once microfinance companies obtain and register to get the licenses. Like banks and non-bank financial institutions (NBFIs), licensed microfinance companies (LMFCs) will join the CRIB so that companies can collect the data from there,” she said while answering a question posed during the panel discussion.

It was pointed out that companies that are engaged in microfinance services had to apply for a licence or obtain registration by 30 September 2017 according to the regulatory framework introduced by the Central Bank in 2016. The newly-enacted Microfinance Act No. 6 of 2016 intends to licence, regulate and supervise unregulated microfinance companies and microfinance non-governmental organisations (MNGOs).

Former Practice Leader for Microfinance at the Asian Development Bank (ADB), Dr. Nimal Fernando, said multiple lending was a serious issue and it was increasing the gravity of the problem.

 

He suggested introducing credit information systems that cover the entire spectrum of financial institutions that are lending to low-income households and microenterprises as one way to answer this issue.  

Dr. Fernando emphasised that right now in most of the cases credit information systems exclude low-income households and microenterprises clientele and if a credit information system was introduced that could bring about some kind of discipline to the industry. 

“You cannot depend on what potential borrowers are going to tell you. You have to rely on solid, hard and reliable data which can come through credit information systems. Regulations are not going to answer that question substantially,” he opined.  

In terms of system stability, although the microfinance sector was not going to create a system of instability even if it collapsed tomorrow considering the size of the segment out of the total spectrum of the financial system, he however stressed that it was going to upset the country from a political point of view.

Daya Group of Companies Group Director Chamindra Gamage addressed the issue of multiple lending, saying: “If you end up potentially looking at 80%-100% growth y-o-y, your own staff is forced out to lend to people you know are not viable for microfinance. It is really a question of each institution taking its own stand there. If all institutions get together and take the right stand then the instability is actually not caused from the financial sector, but from the people,” he pointed out.