Why SL should ban predatory microfinance practices

• Activists and experts have raised concerns regarding the lack of public consultation in the drafting process of the new Bill. They have pointed out potential issues in expanding the CRIB to the grassroots level

Poverty alleviation, especially at the rural level had been a central objective of various governments that were in power. But whether successive governments succeeded in alleviating poverty remains unclear. This is because a myriad of issues that have not only pushed people towards abject poverty but have also disrupted social relationships. Predatory microfinance practices has been one such approach that pushed rural communities towards a vicious cycle of debt. 
In Sri Lanka, provision of financial services to low income households has a long history dating back to the early years of the 20th century. Thrift and Credit Cooperative Societies (TCCSs), established in 1911, were the pioneers in providing financial facilities to the poor. Nevertheless, it was only in the late 1980s, with the enactment of the Government’s Janasaviya programme that microfinance, began to be widely recognised in Sri Lanka as a central tool for alleviating poverty and empowering the poor. In the 1990s, the expansion of microfinance activities embraced governmental, non-governmental and cooperative sectors.
After the year 2000, large financial institutions with access to international financial markets entered the microfinance business. What may have perhaps begun as a humanitarian approach quickly transformed into a predatory practice, providing quick and easy loans to vulnerable communities in need of quick financial assistance. People in rural areas who had little to no financial literacy became immediate baits of this practice. With constitutions and contracts often written in English and receipts given in ink that would fade away in a few days’ time, beneficiaries soon realised that they had no proof to show that they had either obtained a loan or had settled some debts. People were also charged with exorbitant interest rates, some as high as 300%. 
The crisis reached a tipping point when women became immediate targets of this practice. At one point, representatives of these organisations started visiting houses, harassing and intimidating women until they paid off debts. Some women in areas such as Polonnaruwa were compelled to give them their valuables such as furniture, gold jewellery and other items to keep these people from visiting them. There were some women who even took their own lives and some who burned themselves in attempts to escape the problem. 
When companies realised that this was in fact a money-spinning operation, microfinance companies mushroomed in rural areas and many of them lacked proper regulation and supervision. As a result, the long awaited Microfinance Act (No. 06 of 2016) came into effect from July 2016, after several drafts over nearly a decade. But despite repeated notices from the Central Bank of Sri Lanka, most microfinance companies never got themselves registered or had any intention of operating as credible entities. As such the Act itself did not cover all aspects of the issues at hand. This is when a new Act titled Microfinance and Credit Regulatory Authority Bill (gazetted in October 2023, amended due to protests and regazetted in 2025) was presented in Parliament in 2025 to protect customers obtaining money from money lending and microfinance business and to repeal the 2016 Act. 
During the second reading of the Microfinance and Credit Regulatory Authority Bill in Parliament yesterday (4), Labour and Foreign Employment Minister Dr. Anil Jayantha said that the 2016 Act failed to regulate microfinance companies. He said that the objective of the new Bill is to bring all moneylending and microfinance services under one authority. Through this authority, the lenders, customers, nature of transactions would be closely monitored while unlawful transactions would be probed. According to the Minister, any person found guilty of providing loans by unlawful means would be imposed a fine of Rs. 5 million and would be subject to five years imprisonment. 
However, activists and experts have raised concerns regarding the lack of public consultation in the drafting process of the new Bill. They have pointed out potential issues in expanding the Credit Information Bureau (CRIB) to the grassroots level, which could negatively impact low-income borrowers. The microfinance mafia has been fueled by successive governments for too long, at the expense of innocent lives. Therefore, this Government, that was elected on a promise of becoming a people-friendly government, should consider all aspects prior to passing a crucial law of this nature. 

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