The Microfinance Bill 2025: Lawmaking without the people

 Introduction

The Microfinance Bill of 2025 is a product of a lawmaking process that has excluded the very communities it claims to protect. This article reflects on a practice that disconnects the law from lived reality. It also reflects on how the illusion of reform can still leave structural injustices largely intact. To understand how this moment emerged, we first examine the Microfinance Bill of 2023, before turning to the consultation process - or lack thereof -  surrounding the 2025 Bill and the deeper problems it exposes in Sri Lanka’s lawmaking process. 

A brief look at the 2023 Microfinance Bill 

Successive governments have attempted to introduce regulatory reform to address the worsening household debt crisis and no meaningful change has been delivered. 

The Microfinance Act No. 06 of 2016, enacted during the Yahapalana Government, failed to regulate predatory lending practices in microfinance allowing the crisis to deepen across the country. On 27 October 2023, the interim-Government of President Ranil Wickramasinghe gazetted a new Microfinance and Credit Regulatory Bill, in the context of a highly extractive, violent and exploitative  microfinance landscape, the surge in poverty in the aftermath of the 2022 economic crisis and subsequent austerity measures. The Bill was presented to Parliament on 9 January 2024. The Bill claimed to introduce a regulatory framework for moneylending and microfinance businesses with a focus on consumer protection. However, it was drafted without any known public consultation and on the face of it clearly failed to address some of the main concerns of affected communities. 

The Bill offered no protection for microfinance consumers from specific exploitative practices, excluded finance companies against whom there were known complaints of exploitative practice from regulation and failed to differentiate regulations for community-based credit groups from commercial lenders. Community credit is often non-profit-driven, women-led and communal. The Bill required even a village death donation society to register as money lender which in turn also required the society to register as either a company or as a non-Governmental organisation. Such high threshold requirements would risk placing administrative overburden and introduce criminalisation of administrative failures for village level groups collectively engaging in money lending to each other. The failure to differentiate community credit was widely seen as having strong potential for dismantling existing accessible community credit systems that people were relying on during times of financial hardship. 

Seven petitions were filed in the Supreme Court challenging the Bill. The Court determined that certain clauses were inconsistent with the Constitution and could be passed only with  a special majority in Parliament. The Court affirmed that safeguarding customers’ rights and ensuring fair treatment is an integral aspect of microfinance regulation, essential for developing economic justice for vulnerable and low-income communities. 

Subsequently, the Bill was withdrawn by the then Government and the Finance Ministry invited three individuals to represent community concerns in a Working Committee, in the process of amending the Bill. However, no open call was made for public representations. Thereafter, the National People’s Power (NPP) Government within a year of coming into power proposed a law having  not made an effort to engage in meaningful public consultations. This was despite clear indication that the Bill was previously withdrawn because of lack of public input and scrutiny. Later, the three community representatives in the Working Committee publicly denounced the new draft Bill for failing to take their concerns into consideration.[1]. It was in this context that a new ‘revised’ Bill was granted approval by the Cabinet of Ministers in August 2025 and the Microfinance and Credit Regulatory Authority Bill (‘2025 Bill’) was gazetted on 17 November 2025.

The 2025 Microfinance Bill: Is this what citizens called for? 

Despite promises of transparency and accountability in governance - including in lawmaking - the revised 2025 Bill was not released to the public for consultation prior to gazetting. Officials claimed that the 2025 Bill improves on the 2023 version and incorporates amendments proposed by the Supreme Court and other policy-related changes. However, since its release, citizens likely to be affected by the proposed microfinance regulations have raised serious concerns - echoing similar concerns from the past. 

For example, the Bill has weak consumer protection clauses; meaning that borrowers who are already vulnerable to exploitation, violence and being trapped in debt cycles are not entitled to adequate legal safeguards such as requirements of transparency for creditors to disclose complete information in respect of loans and costs, protection against violence and harassment in debt repayment collections and the imposition of an interest rate cap to prevent borrowers from paying multiples of the original capital. Further, the absence of equal representation of women within the Authority, as set out in the Bill, will risk excluding women’s perspectives in decision-making, which is detrimental to many consumers who are also low-income women disproportionately affected by the household debt crisis. 

Another concern raised is the proposed expansion of the CRIB (Credit Information Bureau) in the Bill; critics warn that this could further exclude low-income borrowers from accessing safe and subsidised credit, particularly in instances where they are already shut out of the formal financial sector, resulting in significant socio-economic consequences. Expanding the CRIB to community-based credit organisations may also result in dismantling the available alternative credit system for low-income borrowers who are alienated from formal banks and institutions and deemed ‘uncreditworthy’. Likewise, the Bill does not provide a regulatory mechanism specific for communit- based credit groups operating on a self-governed, collaborative and non-profit basis, such as death donation societies and mutual aid societies. As such the 2025 Bill, while seemingly changed, reproduces the same problems that were inherent in the 2023 Bill. 

Many of these concerns were raised in discussions with legislative representatives , including the Sub Committee under the Ministerial Consultative Committee on Rural Development, Social Security and Community Empowerment tasked with identifying long-term solutions to the microfinance debt crisis. During these discussions, divisive views emerged within the Committee on whether to first amend the Bill upfront to address public concerns prior to its gazetting, or whether to introduce changes post-gazetting at the Committee Stage of Parliament which is an expedited, closed-door, process that limits meaningful public participation.

Following this, on 26 November 2025 - less than 10 days after the gazette and amid the ongoing Budget debates - the 2025 Bill was read for the First time in Parliament. None of the public concerns raised in the intervening days appeared to have been addressed. Soon after, Cyclone Ditwah struck the island, shifting national priorities towards emergency response. The Bill’s First Reading consequently passed with little public notice, and the 14-day window to challenge its constitutionality before the Supreme Court lapsed. The Bill now awaits its Second Reading and is pending before Parliament. Meanwhile, community groups, think tanks and people working with the issue of microfinance continue to call for transparency, stronger safeguards, and a genuine opportunity to participate in the process of shaping legislation that will directly affect their lives. 

An exposition of poor lawmaking and the disregard for public consultation

In light of these developments, the 2025 Microfinance Bill  stands out as a classic example of the weaknesses embedded in Sri Lanka’s lawmaking process. Instead of reflecting inclusive and participatory reform, it has been marked by its repeated sidelining of public consultation, a lost opportunity for constitutional challenge, and a troubling lack of transparency throughout. 

Laws are made for the people. Meaningful public engagement is therefore not optional but essential to ensure that legislation addresses problems rooted in reality. Yet, the public consultation process surrounding the 2025 Bill has been perfunctory. The Bill advanced to Parliament with little space for sustained dialogue, reflecting the persistent top-down approach to lawmaking by the legislature. Opportunities to debate policy before gazetting were limited, and concerns raised by stakeholders were left largely unaddressed. A genuine pre-gazetting process should have allowed time for public feedback on a policy paper and draft Bill. Ideally, in respect of the 2025 Microfinance Bill, such a process would have allowed for policy and lawmakers to learn and consider community concerns regarding the lack of protection for consumers, the reality of low-income women in accessing the formal financial sector and the role played by community-based organisations, prior to the gazetting of the Bill. Instead, the one-size fits all regulatory mechanism proposed by the 2025 Bill has strong potential to stifle collective community efforts amongst what the financial sector deems ‘an uncreditworthy’ population and the inadequate safeguards for credit consumers further ensnare borrowers in a debt trap -  glaring gaps between the law on paper and in practice. 

The constitutional scheme further underscores why early and meaningful engagement is critical. A Bill must be gazetted at least seven days before it is placed on the Order Paper of Parliament and presented for its First Reading. A 14-day window thereafter allows for a constitutional challenge before the Supreme Court. Yet, even where such a challenge is brought, the Court’s mandate, although significant, remains inherently limited and time-bound, and focuses narrowly on constitutional compliance rather than wider policy gaps and lived realities that could determine how the law may operate in practice. Thereafter, the Bill proceeds through the Second Reading, Committee Stage Amendments and Third Reading. The strategy to rely on Committee Stage Amendments as a corrective mechanism risks piecemeal adjustments instead of comprehensive reform, and remains deeply problematic. Once passed by vote and certified by the Speaker, the Bill becomes law. Thereafter, no court or tribunal may inquire into or question the validity of such law on any ground whatsoever, with pre-enactment review representing the sole opportunity for meaningful judicial scrutiny. 

For this reason, public consultation must be treated as a substantive democratic safeguard in the lawmaking process rather than a mere procedural formality. We argue that even after a law is enacted, there must be opportunities made available for structured and inclusive stakeholder engagement, transparent regulatory adaptation, and evidence-based law reform to ensure that laws are continuously evaluated to address concerns of the people who are directly impacted. Even in the case of the 2025 Microfinance Bill, it is not too late to commit to such a process. 

Where to next for the Microfinance Bill?

Unfortunately, the trajectory of the 2025 Microfinance Bill offers a glimpse into how laws are made in Sri Lanka - with little transparency or no accountability and how they often fail the very people they are meant to protect. In a context of ongoing and widespread law reform processes - while the Bill remains pending before Parliament for its Second Reading - this moment presents an opportunity for citizens to closely scrutinise and raise critical questions on process: What works, and what does not? Does Parliament meaningfully consider and reflect the needs of the people? Is law reform fair, inclusive and transparent - or reactive and shrouded in secrecy? And most importantly, how can citizens hold their elected representatives accountable, even at this late stage, when decisions are made with limited public participation? 

In the end, the Microfinance Bill is not simply about credit, debt, or regulation. It is also about power ostensibly held in public trust— who holds it, how it is exercised, and whether those most affected are heard. Without meaningful scrutiny or public participation, this Bill seems to have immense potential to deepen the distance between law and reality.

(Authors Thahira Cader and Nisara Wickramasinghe are Attorneys-at-Law

 with research and writing interests in human rights, governance and economic justice.)

References

[1] Then as farce, now as tragedy: The second coming of Microfinance and Credit Regulatory Authority | Daily FT. (2025, December 10). www.ft.lk. https://www.ft.lk/columns/Then-as-farce-now-as-tragedy-The-second-coming-of-Microfinance-and-Credit-Regulatory-Authority/4-785465