A totally fresh Credit Regulatory Authority Act is being introduced by the Central Bank of Sri Lanka (CBSL) to tackle present problems faced by the nation’s unaccountable micro-finance agencies (MFIs).
“We want to hide micro-financing bodies and micro-lending bodies. The issues of unregulated organizations will, therefore, be dealt with once this Act is implemented, “said Lankan Microfinance Practitioners Association (LMFPA), Assistant Governor, CBSL, J.P.R Karunaratne, at a workshop on responsible financial inclusion held last Monday.
This Act allows all unregulated MFIs and gives a unique room to client privacy laws. At current, only controlled banks, finance, and leasing businesses could regulate and monitor their procedures. Special control over unregulated entities will be exercised through this act.
Today, only the regulated organizations are members of the Sri Lankan Credit Information Bureau (CRIB) where the credit information required is to be disclosed. All the non-regulated microfinance and micro-lending companies subject to licensing are, in addition to this new Act, part of CRIB and CBSL is in the process of engaging the CRIB with the aim of ensuring that its Act provides these enterprises with the opportunity to provide the CRIB with all their customers ‘ credit information.
The enactment of the Act is currently being debated where the Ministry of Finance is to be vetted by a draft Act original. Karunaratne also said that the implementation of this Act also takes into account the opinions of all stakeholders involved in the sector, and possible changes are taken into consideration.
The Regulation also states that all licensed banking and financing firms which accept depots and other MFIs able to mobilize deposits are covered by the current regulation. He thinks that the new Act will, therefore, resolve most of the issues created by these lending organizations without accepting deposits.
Renuka Rathnahewage, Treasurer, LMFPA, said the primary problems of the micro-finance sector were the absence of adequate legislation leading to the emergence of many unregulated entities, which caused a significant crisis within the business. These organizations do not have adequate credit evaluation and awareness conferences.
The second is the absence of utilization of the CRIB equipment. Although some businesses have access to CRIB equipment, they are not used appropriately.
“In this industry, because we mostly push individuals to their goals, we do not have adequate procedures for the evaluation of loans so that they do not focus much on the determination of the repayment ability. These practices lead to significant industry issues, “she added.