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Growing burden in rural areas

29 Jul 2019

By Maheesha Mudugamuwa The Government decided to absorb unpaid microfinance debt worth more than Rs. 1 billion incurred by over 40,000 women in the North, East, and North Central Provinces. However, the transparency of the selection process has been questioned. Attorney-at-Law Radika Gunaratne, who represents several women across the North Central Province in court against predatory microfinance companies, told The Sunday Morning that the Finance Ministry’s decision to absorb over a billion rupees worth of debt was questionable. “As we were informed, the Ministry had signed Memorandums of Understanding (MoUs) with selected financial institutions, which contained criteria decided during a discussion held with the Microfinance Practitioners Association (MPA). These MoUs were signed only with the members of the Association, which has only 64 members. In reality, there are more than 10,000 players in the field, and most of them are unregistered and it is those unregistered companies that are the human rights abusers,” she stressed. She alleged that the Government didn’t do anything to protect the victims and questioned the Government’s selection of the MPA in extending their support. “Last year, during a TV programme, State Minister of Finance Eran Wickramaratne stressed that they paid the debt of over 45,000 women and said that they didn’t want to repeat it, assuring that it won’t happen again. On those grounds, we are unsure of the basis on which they made this recent decision. We don’t endorse any political move as that can’t solve this huge issue. They use public money to write off the loans of only a select few,” she explained. Finance Minister Mangala Samaraweera had been keen to introduce new laws to regulate the industry and it was open for public debate till 19 July. “However, they did not hold public consultations. We passed on our suggestions, but they had not spoken with the affected people,” Gunaratne stressed. “We have an Act, but we did not make it mandatory to follow. That is the issue. In 2015, the Microfinance Act was brought up to cater to this problem, but it did not work because only three microfinance companies registered under that particular Act as registration was not mandatory. On the other hand, the Central Bank of Sri Lanka (CBSL) says they can regulate licensed financial institutions only,” she added. “It is the responsibility of the Government. In the UK, unauthorised lending is banned, so the Government should take the initiative. It is very clear. The question then arises of how they plan to do this as in Sri Lanka, unauthorised lending is not banned. Here, there are very successful methods like co-operative societies; they will also have to register under the new act,” she stressed. “There are several good provisions. Microfinance is not for the rich, it is for poor,” Gunaratne noted. Even if the Government says it is going to protect these women from microfinance institutions, they are not saying how it will be done. Anomalies and motivation Speaking to The Sunday Morning, Transparency International Sri Lanka (TISL) Advocacy and Legal Advice Centre Legal Officer Anjana Wickremarachchi said that the Ministry of Finance had placed a lot of focus on the microfinance issue. However, Wickremarachchi noted that while the Finance Ministry claims to have allocated funds to address the issue, it is not clear as to how much it really allocated. “The Ministry had also promised these people that they would absorb debt below Rs. 200,000 from the year’s Budget, but when you go through the Budget, it is not clearly mentioned,” Wickremarachchi said. Progressive Peasants Congress (PPC) President M.K. Jayatissa, who is working at an association that was voluntarily established to hear the grievances of these victims, claimed that the Government’s decision was taken in light of the upcoming elections, as they haven’t given anything in writing to these victims as yet. He told The Sunday Morning that the Government is using this as cover to pay government money to financial companies owned by some politicians. “The main reason the Government took a decision to talk about this in public was because the total number of suicides that resulted from the debt trap, which was caused due to taking excessive microfinance loans, increased to 168. But till now, they failed to speak with the people in the villages,” Jayatissa alleged. Responding to the allegations, an official of the Ministry of Finance told The Sunday Morning that the Government has already absorbed the debt of 45,000 women and the process of issuing written proof for this was still ongoing. The Microfinance Act No. 6 of 2016 provides for the licensing, regulation, and supervision of companies carrying on microfinance businesses, which are called licensed microfinance companies (LMFC). LMFCs would be directly regulated by the Monetary Board of the CBSL. According to the CBSL, the Act provides for the registration of microfinance non-governmental organisations (MNGOs) registered under the Voluntary Social Services Organisations (Registration and Supervision) Act No. 31 of 1980 (VSSO Act), by the Registrar of Voluntary Social Service Organisations. As stated in the annual report of the Finance Ministry, the Government absorbed more than Rs. 1.25 billion worth of unpaid microfinance debt accumulated by 45,139 women in the North, East, and North Central Provinces. At the same time, lending companies had written off Rs. 141.41 million worth of interest payments on these loans. Last year, the Government introduced a scheme to write off non-consumption loans amounting up to Rs. 100,000 given to women by all registered finance companies in the drought-affected districts of Trincomalee, Ampara, Batticaloa, Jaffna, Mullaitivu, Kilinochchi, Vavuniya, Mannar, Kurunegala, Puttalam, Anuradhapura, and Polonnaruwa. Thirty-seven microfinance institutions and finance companies submitted their claims under this proposal and both the capital and interest components of each of the loans were written off. The Treasury committed to reimburse the written-off capital to the companies within three years in equal, semi-annual instalments. The loss incurred by writing off the interest on the loans will be borne by the lenders.

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