Way forward for victims of Microfinance crisis towards recovery

Colombo, July 22 (Daily Mirror) - Following the recent enactment of the Microfinance and Money Lending Act, the Avanka Lanka Foundation has issued an open letter urging President Anura Kumara Dissanayake to grant special approval for over two million debt-trapped Sri Lankans to form dedicated, village-based Thrift and Credit Cooperative Societies. Writing on behalf of microfinance victims whose government Aswesuma welfare payments are being coerced by predatory lenders, Foundation Chairman Lasantha Mendis called on the President to immediately override a Department of Cooperative Development policy halting new registrations, arguing that specialized, state-backed cooperatives offer the only practical and dignified pathway to rural financial recovery.

Following is the open letter to President Anura Kumara Dissanayake -

The Avanka Lanka Foundation, wishes to congratulate this Government led by the President Anura Kumara Dissanayake on enacting the new Microfinance and the Money Lending Act with the view to protect loan recipients from errant Microfinance providers and money lenders: An achievement that successive Governments were unable to accomplish.

As Your Excellency will know over two million households have been trapped in poverty and over-indebtedness as a result of multiple borrowings from errant microfinance providers who, over many years, targeted financially vulnerable and often financially illiterate women in marginalized rural and urban communities.

Whilst we wholeheartedly welcome the enactment of the new Microfinance and the Money Lending Act, we respectfully wish to bring to your attention the need for a complementary mechanism to protect those who have already fallen victim to these errant microfinance providers whose collection agents coerce borrowers into surrendering a substantial portion of their Aswesuma allowance, thereby depriving these families of the very assistance provided by the Government for their welfare.

In our opinion, one practical and sustainable solution would be to encourage these victims to form Village-Based Thrift and Credit Cooperative Societies, comprising exclusively of affected borrowers of the Microfinance Crisis.

Such societies would provide members with a safe, community-based cooperative society while affording them collective protection from the pressures exerted by collection agents of errant lenders who operate under the guise of microfinance providers.

As the Cooperative Act has an iron clad recovery system, room for wilful defaulters is minimal.

Further, the Department of Cooperative Development could be directed to provide bulk loans to these societies for on-lending to their members to kick start the lending process of the newly formed Cooperative Societies. As members gradually build their savings, these village based Cooperative Societies would become increasingly self-sustaining, enabling the initial funding to be fully recovered with interest over a period of approximately five years.

Unfortunately, this approach cannot be implemented at present because the Department of Cooperative Development has adopted a policy of not registering new Thrift and Credit Cooperative Societies. Consequently, many of the very people whom this Act seeks to protect are left without a practical alternative source of affordable credit, thereby limiting the full effectiveness of this important legislation.

A majority of the victims of the Microfinance crisis are not members of the Cooperative movement for numerous reasons and its not easy for them now to join an existing Cooperative Society and secure adequate amounts of credit to kick start their businesses.

Hence the need for the establishment of dedicated Thrift and Credit Cooperative Societies at village level for Victims of the Microfinance crisis seems to be the need of the hour.

The Cooperative movement has rendered yeoman service in Sri Lanka for over a century and has proven itself despite criticism levelled against them from various quarters.

In view of the above, may we respectfully request you to direct the Minister of Cooperatives to facilitate and encourage the formation of Village-Based Thrift and Credit Cooperative Societies comprising exclusively of victims of the microfinance crisis.

Such an initiative would provide these vulnerable families who have fallen prey to errant Microfinance providers and pave a dignified pathway towards financial recovery.

As mentioned above, the Department of Cooperatives has taken a decision not to register Thrift and Credit Cooperatives.

Hence the appeal to Your Excellency to direct the Minister of Cooperatives to grant special approval to victims of the current Microfinance crisis to form Village based Thrift and Credit Cooperatives.

The Avanka Lanka Foundation is committed to render its assistance on a voluntary basis to implement this initiative be it at beneficiary level or at the level at the Department of Cooperative Development.

We trust you would give this proposal your kind consideration.

We firmly believe that, together with the new Microfinance and Moneylending Act, this initiative would provide a comprehensive and sustainable solution to one of Sri Lanka's most pressing rural socio-economic challenges.

In conclusion we reiterate our gratitude on behalf of the Victims of the Microfinance Crisis and Civil society at large to Your Excellency and your Government for enacting the new Microfinance and Money Lending Act and look forward to Your Excellency's urgent intervention in this regard.

Lasantha Mendis

Founder Chairman

Avanka Lanka Foundation