Bill cleared to regulate microfinance and money lending sector

The Committee on Public Finance (COPF) has approved the proposed Microfinance and Credit Regulatory Authority Bill, paving the way for tighter oversight of the country’s microfinance and money lending sector, including the online lending activities. 

The bill was approved on February 11. 

The proposed legislation aims to establish the Sri Lanka Microfinance and Credit Regulatory Authority, regulate microfinance and money lending businesses and strengthen customer protection. It will also repeal the existing Microfinance Act No. 6 of 2016.

The officials told the committee that the new authority would be responsible for issuing licences and regulating the entities engaged in microfinance and money lending and that no person or institution would be allowed to operate such businesses without a licence.

The committee also sought clarification on whether online lending would fall under the regulator’s scope, with the officials confirming that digital lending can only be conducted by licensed entities.

COPF Chair Harsha de Silva noted that an earlier version of the bill presented in 2024 had been challenged before the Supreme Court but the constitutional inconsistencies identified by the court appear to have been addressed in the revised draft.

The lawmakers also raised concerns about whether the bill sufficiently recognises the social empowerment role of community-based financial institutions, including the need for simplified compliance requirements or relaxed regulatory fees.

The officials said certain lenders, such as e-commerce operators, would not fall within the scope of the proposed act.

The committee recommended that the Finance Ministry implement public awareness programmes to address mistrust and uncertainty surrounding the legislative reforms, including publishing a frequently asked questions (FAQ) document as an initial step.

The authority will also be empowered to determine maximum interest rates in lending and deposit sectors, with the committee urging that such powers be exercised carefully to preserve the nature of financial instruments used by the microfinance institutions.

Discussions were also held on delegating limited regulatory functions to the Divisional Secretariat offices to ease the access for small-scale lenders outside Colombo, with the committee stressing the need for a strong information technology system to support implementation.

At the same meeting, the committee approved a resolution under the Customs Ordinance and three orders issued under the Special Commodity Levy Act, the statement added.