Sri Lanka’s Non-Governmental Organisation (NGO) sector handles billions of rupees each year, much of it directed towards development, humanitarian assistance, poverty alleviation, education, health, human rights, and other social programmes.
The scale alone makes the case for financial accountability difficult to dispute. Official figures published by the National Secretariat for Non-Governmental Organisations show a reported NGO fund inflow of approximately Rs. 20.69 billion in 2023, while the forecast cost of NGO activities for 2024 stood at approximately Rs. 33.4 billion.
Separately, the secretariat’s published list of reported fund inflows for 2024 records approximately Rs. 20.15 billion across 91 entries. The figures provide an important backdrop to the Government’s latest attempt to introduce a new legal framework for the sector through the proposed Non-Governmental Organisations (Registration and Supervision) Bill of 2026.
The question confronting Sri Lanka, however, is not simply whether NGOs should be regulated. They already are. Rather, the controversy centres on how far that regulation should extend.
Should the State restrict itself to ensuring that billions of rupees entering the sector are properly declared, audited, and spent for their stated purposes? Or should a regulator also have powers extending to the activities, advocacy, and policy positions of civil society organisations?
It is the line between those two objectives – financial accountability and institutional control – that is emerging as the central fault line in the debate over the proposed law.
Bill under consultation
The National Secretariat for NGOs shared an amended draft of the proposed NGO (Registration and Supervision) Bill with the National Collective of Civil Society Organisations and NGOs in July this year. According to the secretariat, representatives were invited to submit written observations on individual provisions, with the Government indicating that amendments could be considered.
However, the Government has made it clear that the fundamental regulatory objective will remain. According to the secretariat, the bill is intended to strengthen NGO regulation while minimising the risks of money laundering, terrorist financing, and proliferation financing.
The argument is straightforward: organisations collecting or receiving large sums of money, particularly from overseas, cannot operate outside a credible system capable of establishing where that money came from, who controls it, and where it ultimately goes.
However, civil society activists argue that a law justified on financial accountability grounds should not give the Government broad authority over legitimate advocacy and dissent.
More than 200 active national-level organisations
The NGO sector in Sri Lanka is neither small nor uniform. The National NGO Secretariat’s register, updated on 24 July, lists more than 200 active national-level NGOs, in addition to organisations registered and operating at district and divisional levels.
They range from large international organisations and development agencies to Sri Lankan charities, election monitoring organisations, human rights groups, community organisations, and organisations dealing with health, disability, education, women, children, livelihoods, and the environment.
Under the existing system, international NGOs, local NGOs receiving foreign funding, organisations operating in more than one administrative district, and NGOs incorporated under the Companies Act are among those required to register at the national level. Organisations operating solely within a district or divisional secretariat area may fall within the respective district or divisional registration structures.
Therefore, the regulatory question encompasses organisations of vastly different sizes and purposes. A multi-billion-rupee international humanitarian organisation does not necessarily present the same regulatory risks as a small community organisation operating within a single district. This makes proportionality particularly important.
Where does the money come from?
Foreign funding remains an important part of Sri Lanka’s civil society economy. The Doing Good Index 2024, which examined social delivery organisations across Asia, found that foreign funding accounted for approximately 51% of the budgets of surveyed Sri Lankan social delivery organisations – the largest source of funding identified for Sri Lanka in the study.
Foreign funding, however, is not evidence of wrongdoing. Sri Lankan NGOs have historically depended on international donors for projects ranging from humanitarian assistance following the tsunami and the war to demining, poverty alleviation, health, education, governance, election monitoring, reconciliation, and environmental protection.
Nevertheless, the amounts involved underline why there is a legitimate public interest in financial disclosure. The NGO Secretariat’s 2024 reported fund inflow list, for example, records Rs. 7.77 billion for World Vision Lanka, Rs. 2.72 billion for Save the Children, Rs. 2.10 billion for the Mines Advisory Group, and Rs. 1.71 billion for The Asia Foundation. Those four entries alone account for more than Rs. 14 billion in reported inflows.
Such figures strengthen the argument that organisations receiving substantial funding should maintain proper accounts, disclose significant sources of funds, and be subject to credible auditing. But they also make another point: any regulatory regime dealing with this sector needs clearly defined rules rather than broad discretionary authority.
NGOs are already subject to controls
The impression that Sri Lanka’s NGOs currently operate entirely beyond State oversight would be inaccurate. The existing framework is principally based on the Voluntary Social Service Organisations (Registration and Supervision) Act No.31 of 1980, together with subsequent administrative requirements.
The NGO Secretariat states that international NGOs and local NGOs receiving foreign funding are required to register at national level. Registration procedures can also involve obtaining clearance from the Ministry of Defence, Ministry of Foreign Affairs, and relevant line ministries.
Financial reporting requirements have meanwhile been strengthened. In July 2024, the NGO Secretariat issued a circular to streamline the submission of annual audit reports after stating that it had been receiving complaints from members and other parties alleging that the financial affairs of some voluntary organisations were not being properly audited.
The Government therefore has grounds to argue that weaknesses remain in the existing system. However, that history also raises an important question for the proposed bill: are identified weaknesses best addressed through better financial reporting and enforcement, or through substantially wider supervisory powers?
What SL’s own risk assessment says
The terrorist-financing argument requires particular scrutiny because Sri Lanka has direct experience of terrorism and the misuse of seemingly legitimate structures.
The 2021/’22 National Risk Assessment on Money Laundering and Terrorist Financing, conducted through the Financial Intelligence Unit (FIU) of the Central Bank of Sri Lanka, examined the vulnerability of different categories of Non-Profit Organisations (NPOs).
The assessment covered 1,654 national-level NPOs across six broad categories. The largest category was poverty alleviation and entrepreneur development, with 435 organisations, followed by environmental and other organisations with 367, training and education with 328, human rights with 204, relief work with 175, and health and sanitation with 145.
Significantly, the assessment found that only around 4% of the assessed NPO population had “significant international exposure,” while 96% had less international exposure.
The risk was also not uniform across the sector. Health and sanitation, poverty alleviation and entrepreneur development, and environmental and other organisations were assessed as carrying comparatively low inherent terrorist-financing risk. Relief work and human rights organisations were assessed as having medium-low inherent risk, while the training and education category carried a medium inherent risk.
The findings raise the question of whether a risk-based regulatory system would be more appropriate than treating every NGO as presenting an identical threat.
Sri Lanka has since completed its third National Risk Assessment for 2024/’25, with the FIU announcing in March this year that the exercise involved 86 Government, regulatory, and private sector institutions, as well as around 200 experts.
Following the money
There is little credible argument against knowing where NGO money comes from. If an organisation receives hundreds of millions – or billions – of rupees from overseas, regulators should be capable of establishing the source of those funds and whether they have been used for their declared purpose.
Similarly, NGOs collecting money from the Sri Lankan public should be accountable to the people donating those funds.
Effective regulation could therefore require clear identification of significant donors, independently audited financial statements, disclosure of foreign remittances, records of project expenditure, declarations of conflicts of interest, and identification of those exercising ultimate control over an organisation.
Suspicious transactions should be investigated. Fraud should be prosecuted. Money laundering and terrorist financing should be dealt with under the law. The controversy begins when following the money becomes about controlling the organisation.
‘A very serious issue’
Civil society activist Manjula Gajanayake raised serious concerns over the direction of the proposed regulatory framework, warning that some provisions could unnecessarily restrict civil society organisations and undermine their independence from the Government.
Gajanayake particularly questioned provisions that could require registered organisations to operate in a manner consistent with Government policy. “The proposed NGO Bill is very harsh. One of the major concerns is the expectation that registered entities, including NGOs, should accept Government policies. That is a very serious issue,” he told The Sunday Morning.
His argument is that civil society organisations, by their very nature, should be capable of scrutinising State policy, proposing alternatives, and criticising Government decisions without fearing regulatory consequences.
An election monitoring organisation must be able to criticise an election authority. A human rights organisation must be able to question the conduct of the Police or military. An environmental organisation must be able to oppose a Government-approved development project. An anti-corruption organisation must be able to investigate or question those exercising State power.
Requiring such organisations to align themselves with Government policy could create an inherent conflict with the watchdog role civil society is expected to perform.
Gajanayake also placed the NGO Bill within what he described as wider concerns over the direction of legislation affecting civic space and transparency. He maintained that transparency and accountability requirements were legitimate, but argued that regulation should not provide the State with excessive control over the activities or policy positions of NGOs.
His central concern is that legislation introduced in the name of accountability should not ultimately provide a mechanism capable of restricting criticism or dissent.
Accountability cannot be one-sided
Nevertheless, civil society must confront an uncomfortable question of its own. Organisations that demand transparency from the Government cannot credibly argue that their own finances should remain opaque.
If an NGO campaigns against corruption, the public can reasonably expect that organisation to maintain strong internal financial controls. If an organisation demands disclosure from politicians and public officials, it should be prepared to disclose its own principal funding sources and demonstrate how those funds are spent.
Likewise, international donors funding Sri Lankan organisations should not be exempt from scrutiny merely because their stated objectives are humanitarian or democratic.
The independence of civil society and the financial accountability of civil society are not mutually exclusive. In fact, strong and credible financial governance can protect legitimate NGOs from accusations that they are operating as fronts for undisclosed interests.
Finding the legal balance
Senior Attorney-at-Law Sampath Perera said: “The State undoubtedly has a legitimate interest in regulating the financial affairs of organisations that receive and administer substantial sums of money, including foreign funds. Requiring registration, proper accounts, independent audits, and disclosure of significant funding sources cannot automatically be characterised as interference with civil society. However, regulatory powers must be connected to a legitimate purpose and must be proportionate to that purpose.
“If the purpose of the legislation is to prevent money laundering, terrorist financing, fraud, and the misuse of donor funds, then the powers provided under the legislation should primarily address those risks. Financial regulation should not become a mechanism for controlling legitimate criticism, advocacy, or political expression.
“There must also be safeguards against arbitrary decision-making. If a regulator is empowered to refuse registration, suspend an organisation, or cancel its registration, the grounds for exercising those powers should be clearly stated in law and affected organisations should have access to an independent appeal or judicial review.”
“The appropriate balance is therefore neither complete freedom from accountability nor unrestricted State supervision. NGOs should be financially transparent and accountable, while remaining institutionally independent in carrying out lawful activities,” he stressed.