Four-layer regulator with CB as national level regulator
By Yohan Perera
The government is currently drafting a microfinance bill to accommodate a four-layer regulator with the Central Bank (CB) as the national level regulator to regulate microfinance lending.
The said bill will be made available soon for public comments, Policy Planning and Economic Affairs Deputy Minister Dr. Harsha de Silva said.
The government in its interim budget presented in January proposed to impose a cap on the interest rates on microfinance lending.
It proposed the microfinance industry lending rate to be limited to a maximum of an effective rate of 40 percent per annum.
According to Finance Minister Ravi Karunanayake, there are significant fluctuations in the interest rates charged by the microfinance institutions (MFIs) and this has hampered the development of this sector.
It is observed that there are 10,000 MFIs in the country and they have achieved a significant outreach to a large number of people in the country.
“We have identified the importance of promoting financing facilities in the microfinance sector to enhance income generation opportunities and improve the living standards of the people in the country,” Karunanayake said in his budget speech.
Meanwhile, Dr.de Silva said the government is pursuing the budget proposal of guaranteed prices for tea and rubber for smallholders.
The interim budget in January proposed to allocate Rs.5 billion to purchase tea leaves at Rs.80 per kilogramme and Rs.3.6 billion to purchase rubber at Rs.350 per kilogramme.
He said a decision has been made to utilize mobile purchasing units to buy rubber from smallholders.
The tea subsidy is being implemented by giving factory owners funds to pay the growers up front, while the rubber subsidy requires growers to sell their produce to customers at lower prices and travel to Colombo and produce their receipt to reclaim the difference.
However, most rubber smallholders would not even think of travelling to Colombo since their operations are too small and the travel costs would go a long way to offsetting the subsidy.
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