By Ashwin Hemmathagama
Our Lobby Correspondent
New laws on licensing, regulating and supervision of companies carrying out microfinance business received Parliamentary approval on Wednesday.
Moving the second reading debate, Prime Minister Ranil Wickremesinghe stated the lack of regulation had made room for exploiting unsuspected grassroots in the country.
“What has happened so far is the exploitation of the unsuspecting people by the microfinance companies. We have to bring that to an end. I hope this new legislation will be the most important but it is only the first step. There will be other legislation that we will have to bring. But first I ask this House to give its consent to pass this legislation. There has to be a whole series of new laws. The grassroots economy is the most important of our country and we have to strengthen it,” said Wickremesinghe.
The proposed laws will govern the registration of Non-Governmental Organisations accepting limited savings deposits as microfinance Non-Governmental Organisations, the setting up of standards for the regulation and supervision of microfinance Non-Governmental Organisations and micro credit Non-Governmental Organisations and to provide for matters connected.
Making room for SMEs to create employment opportunities amidst mega development projects, the Prime Minister called on the House to consider his Grama Rajya concept.
“In today’s development when large-scale developments come in, it has to be matched by a strong local economy, which creates jobs. The way technology is developing today, you might find robotics and automation inside large developments. So where do you find the employment? That has to come to the grassroots to service organisations and small organisations. In addition, I will be asking the House to look at our proposals on Grama Rajya. The other measure we are contemplating is relating to Small and Medium Enterprises. The jobs will come from the grassroots economy and the SMEs. Large enterprises are needed but job creation will be with the others. Bringing in Grama Rajya will play a major role.”
Outlining a broad plan for the financial sector, he said: “We are presenting an important part of the financial regulations. Today financial regulation is not confined to large banks or even to finance companies. There is a large number of financial entities, both private and State, operating in the country from national level to local level. I find the laws in respect of finance companies and banks, including the microfinance companies, are insufficient. It has led to a lot of speculation and exploitation of the consumers.
“If you look at the finance companies, 11 or 12 finance companies have collapsed, incurring a loss to investors, depositors, and the general public of all classes, as a result of this inability to sufficiently regulate the finance companies. On the other hand, we see large-scale financial conglomerates coming up at national level. Unless these are regulated properly, they could become a threat to the country by manipulating the economy. We already see this happening in the capital market and the stock market where a few try to manipulate. My policy so far has been not to tell them what they are doing.
“You found recently everyone was talking about the collapse of the economy. But in fact the measures we are taking will have a stronger economy. All of a sudden the same people who said the economy is coming down and we need not invest in Sri Lanka are turning around to invest in the country. All of a sudden they have forgotten that we are going to bring the capital gains on share market. That is one aspect to it and today we are dealing with the microfinance aspect. There were large numbers of pyramid schemes, and for some reason or the other the speciality for all these pyramid schemes is in Tissamaharama and Hambantota. I don’t know what the reasons are but the biggest came from there. We were not applying the law. We failed to apply the law. Either the regulating authorities didn’t pursue these matters or the Police did not investigate. Today once we pass this bill the committee could also recommend to us further action required. Pandora Advertising and Luminous Advertising are some of it. In Batticaloa there have been problems,” added PM Wickremesinghe.
According to the new law, initially the non-governmental microfinance organisations have to register under the Voluntary Social Services Organisations Registration Provisions Act No. 3 of 1980.
“What we seek to provide in different chapters is that if you want to carry on this business, you must be licensed under clause 3. We have given the procedure and the conditions are found in the schedules. We have also listed the restrictions on certain business carried on by microfinance companies. Management of licensed microfinance companies are included in part 3, directions and rules governing licenced microfinance companies in part 4 and 5 on financial statements, audit of microfinance companies, examining and supervision of microfinance companies, and then the most important part is part 7, which also deals with cancellation of license and windup of microfinance companies. Finally, the last two provisions for licensed non-governmental microfinance companies is the principle guidelines laid on by the board,” he said.