SOC focuses on interest caps and stricter rules as Microfinance Bill enters final stages

The Sectoral Oversight Committee (SOC) on Economic Development and International Relations has accelerated efforts to finalise the Microfinance and Credit Regulatory Authority Bill, which aims to provide a comprehensive overhaul of the industry and protect vulnerable borrowers from predatory practices.

During a recent meeting in parliament under the chairmanship of MP Lakmali Hemachandra, the committee reviewed critical amendments to the legislation, which was first presented for its first reading on November 26, 2025. 

The proposed law seeks to repeal the existing Microfinance Act, No. 6 of 2016, and establish the Microfinance and Credit Regulatory Authority of Sri Lanka to oversee both microfinance institutions and the previously unregulated money lending business.

A landmark provision in the bill that is set to impact the industry significantly is a strict cap on interest recovery, which stipulates that a lender is prohibited from recovering a total interest amount that exceeds the principal sum lent to a borrower. 

To ensure a smooth transition, the legislation allows existing moneylenders to continue their operations for a period of 24 months from the date the act comes into operation, provided they comply with the new standards and apply for a formal license within a timeframe specified by the Authority. Failure to obtain a license while continuing a money lending business could result in severe penalties, including a fine of up to Rs. 5 million, imprisonment for up to five years, or both.

The new Authority will be empowered to establish dedicated credit counseling centers and a formal complaint-handling mechanism to investigate grievances from aggrieved customers. Initial operations of the Authority are expected to be supported by a Rs. 100 million allocation from the Consolidated Fund as initial capital. 

Furthermore, the bill introduces stringent consumer protections, explicitly barring lenders from obtaining signatures on blank or incomplete documents and strictly prohibiting any financial agreements with individuals who have not reached the age of majority. These measures, alongside mandates for transparent disclosure of annual effective interest rates, are designed to eliminate debt traps and foster a responsible lending culture across the country.