Slew of measures in the offing to ensure stability of NBFI sector, consumer protection

• Authority to oversee micro-lending and unregulated lending activities could see light of day 

Among a string of financial sector policies announced for 2023, the Central Bank intends to bring new legislation as well as revisions to the existing legislations in the non-bank financial institution (NBFI) sector to ensure its continued stability and to strengthen consumer protection. 
Unveiling its monetary and financial sector policies for 2023 last week in a few page document, the Central Bank said amendments to the Finance Business Act and the Finance Leasing Act are in the offing. 

Sri Lanka’s non-bank finance institutions engaged in finance and leasing businesses are governed by the Finance Business Act No.42 of 2011 and the Finance Leasing Act No. 56 of 2000. 
The Central Bank said the amendments would be brought to bring the two pieces of legislation up-to-date with market developments to ensure the stability of the sector. 
NBFI sector in the recent past has shown some signs of vulnerability and as a result measures were taken to set higher minimum capital requirements. 
The regulator has in fact applied a tougher stance on those firms which have continued to fall short of capital requirements, at times imposing deposit and lending caps on them and compelling others to find merger partners if they are unable to enhance the capital requirements by themselves.

There were also instances where the Central Bank had cancelled licenses of some of the non-bank lenders due to continuous breach of regulatory capital requirements and the latest such case was the cancellation of the finance business licenses and the license to operate as a leasing establishment by beleaguered finance company, Swarnamahal Financial Services PLC effective from December 28, last year. 
Meanwhile, the Central Bank also expects to see the passage of the proposed Microfinance and Credit Regulatory Authority bill during 2023 to improve the market conduct of these firms and consumer protection of overall non-banking sector customers. 

The said law is years in the making and it defies the logic why it hasn’t seen the light of day. It has precisely been two years since the then Governor of the Central Bank, Dr. W.D. Lakshman announced at the 2021 Road Map event that this law had received the approval of the Monetary Board and was going before the Cabinet for its approval. 
The new law would effectively replace the existing Microfinance Act No.06 of 2016 and its enactment will give effect to a new, ‘Authority’, established within the Finance Ministry consisting of ex-officio representatives from the Ministry, the Central Bank, and the nominees of the Central Bank and the Ministry.
According to the mandate of said Authority, it will regulate micro-finance institutions and unregulated money lenders in the country.

The need to crack down on unregulated money lenders came to the fore in 2020 when the Chairman of Self-employed Professionals’ Three Wheel Association was unfortunately killed after being assaulted by a group of so-called ‘seizures’ attached to a finance company, which was later found to be an unregulated business, when he went there to talk as to why the then announced relief on leasing payments was not offered by the firm. 
“Further, measures will be prioritised to bring the Licensed Micro-Finance Companies (LMFCs) and unregulated moneylenders under the regulatory purview,” the Central Bank said.