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Wednesday, 25 July 2018 00:00 - - {{hitsCtrl.values.hits}}
By Chathuri Dissanayake and Rahel Kirinde
Hot on the heels of the microloan write-off for drought-affected districts approved by the Government, the Lanka Microfinance Practitioners’ Association (LMFPA) yesterday called for the establishment of a regulatory body to govern all microcredit institutions operating within the country.
Launching a new code of conduct for its members yesterday at the Centre for Banking Studies Rajagiriya in order to ensure fair play in the industry, association President Imran Nazeer said that despite the self-regulatory efforts taken there was an immediate need for a proper regulatory body.
“The code of conduct is a self-regulatory measure but there are all types of microfinance companies in operation so there needs to be stringent regulation and this has to be done by an authority,” Nazeer told the Daily FT.
“We had been lobbying the authorities and regulators for nearly 10 years to bring forward a microfinance act to the country and it was finally done in 2016. However, it is yet to be actively implemented,” said Nafeer.
Insisting that the microfinance act which was enacted was not being properly implemented, Nazeer urged the Government to take action to regulate the industry, saying the conduct of a few had brought the sector into disrepute.
However, according to Central Bank Assistant Governor J.P.R. Karunaratne, who was also present at the event, only one out of nine applicants have been registered with the Central Bank as a microfinance company.
According to Nazeer, there are an estimated 200 microfinance organisations in operation in the country, out of which an estimated 100 have an established network across the country. Only 76 of them are registered with LMFPA while another 15 are registered with the NGO Secretariat.
He said the absence of a proper regulatory framework had also affected the categorisation of lending companies as microfinance companies as there was no established definition of the criteria to be recognised as a microfinance organisation.
National Policies and Economic Affairs State Minister Dr. Harsha De Silva, speaking at the event, acknowledged the issues associated with a lack of proper regulations leading to high interest rates and the victimisation of borrowers.
“Questions are being asked if microfinance companies are becoming another own breed of loan sharks. That is not a good thing,” he said.
“Not everybody is bad; there are impostors, there are people pretending to be microfinance companies, carrying out a business that looks like microfinance and really using usurious rates and putting people into trouble and the blame comes to microfinance companies. The facts on the ground are so bad that you will have to do this quickly,” the State Minister insisted.
Expressing the need to implement the act, Dr. de Silva however said that Central Bank was limited in its capacity to monitor microcredit companies as its role was focused on protecting the depositor.
“In microfinance companies there are no major depositors,” he pointed out.
“Here the issue is the borrowers. They say they are being taken for a ride. The companies are charging a 40%-220% interest rate for borrowings. These are the ground realities we found in Jaffna. This is not one incident but there are a collection of incidents. We have to understand that this is not one incident and this is something which many have faced,” Dr. de Silva said.
Calling some companies which operate under the microfinance banner loan sharks, the State Minister stressed the need to flush the system free of rogue companies “pretending to be microfinance companies.”
“There have been multiple issues and the issues that you are facing today are also caused by microfinance companies but the question is are they really microfinance companies or are people pretending to be microfinance companies,” he said, stressing the need to establish a proper criteria to recognise a microfinance company.
