Financial literacy only ‘Half the Problem’, warns JICA, urging lender regulation

Kenji Kuronuma

As Sri Lanka launches new initiatives to boost financial literacy, a top international partner has stressed that merely educating borrowers is not enough. Real financial inclusion, the official warned, will remain out of reach unless the country simultaneously implements robust regulation to supervise lending institutions and curb predatory practices.

Speaking at the launch of the Central Bank (CB) key financial literacy initiatives in Colombo yesterday, Japan International Cooperation Agency (JICA) Chief Representative Kenji Kuronuma pointed out that focusing solely on borrower education is tackling only half the problem. He described tackling lender conduct as “the other side of the coin.”

His call to action comes as post-crisis Sri Lanka confronts a sobering reality: a doubled poverty rate, with over 20 percent of the population expected to remain in hardship for the medium term. This economic desperation has pushed countless households and small businesses toward high-interest informal lenders, creating a widespread crisis of over-indebtedness.

“Many people are suffering from excessive indebtedness  using loans for daily expenses or unproductive investments without fully understanding the negative impacts,” Kuronuma warned, pointing to a lack of awareness about the risks of borrowing from the informal sector.

While praising CBSL’s new awareness campaigns, which JICA is supporting, Kuronuma drew a powerful parallel to Japan’s own painful experience with a widespread debt crisis that plagued its citizens through the 1980s and 90s.

He offered Japan’s 2006 Money Lending Business Act as a potential blueprint for Sri Lanka. That decisive legislation, he explained, protected the public by imposing a clampdown on lenders. Key reforms included capping excessively high interest rates, limiting loan amounts to a borrower’s capacity to repay, based on their annual income, strengthening penalties for unauthorised lenders and banning harsh debt collection methods.

“A proper framework to regulate problematic lenders is useful not only to protect the vulnerable borrowers but also to enhance the growth of lenders with proper practices,” Kuronuma stated.

The message is particularly relevant as Sri Lankan policymakers are currently reviewing the Microfinance and Credit Regulatory Authority Act. 

JICA pledged its continued support for CB’s dual efforts in education and regulation, with Kuronuma acknowledging the “long way to go to achieve real financial inclusion.” (NF)