The Central Bank of Sri Lanka (CBSL) is in the process of enacting a completely new Credit Regulatory Authority Act to address the current issues of unregulated micro finance institutions (MFI) of the country.
“Our intention is to cover up micro financing institutions and micro lending institutions. Thus problems related to the unregulated entities will be addressed once this Act is enacted,” said Assistant Governor, CBSL, J.P.R Karunaratne at the inauguration of the International Workshop on ‘Responsible Financial Inclusion’ organized by Lanka Microfinance Practitioners’ Association (LMFPA) last Monday.
Through this Act all the unregulated MFIs are licensed and special space is given to accommodate regulations about customer protection. At present the CBSL could only regulate and monitor the processes of the regulated banks, finance and leasing companies. Through this Act special control will be taken over the unregulated entities.
Currently only the regulated institutions are members of the Credit Information Bureau of Sri Lanka (CRIB) where they should disclose all the necessary credit information. Along with the provision of this new Act, all the non regulated micro financing and micro lending companies which are subjected to licensing are part of the CRIB and the CBSL is in the process of making discussions with the CRIB to make provisions in their Act to make it possible for these companies to disclose all the credit information of their clients to the CRIB.
Currently the enacting of the Act is under the discussion level where an initial draft of the Act is sent to the Ministry of Finance for vetting. Karunaratne also said that views from all stakeholders connected with the industry are also considered for the enactment of this Act and possible alterations are also accommodated.
He also said that the present regulation covers all registered banking and finance companies which are the deposit accepting companies and other MFIs that could mobilize deposits. Thus he believes that the new Act would solve a majority of the problems aroused due to these institutions that lends without accepting deposits.
Treasurer, LMFPA, Renuka Rathnahewage said that the main issues within the micro finance Industry are the lack of proper regulations which had led to the birth of many unregulated institutions creating major crisis within the industry. These institutions have no proper loan assessment processes and awareness meetings.
The second is the lack of usage of facilities provided by the CRIB. In spite of having access to facilities provided by the CRIB, some companies do not use them accordingly.
“In this sector since we are pushing people for their targets most of the time we don’t have proper loan assessment processes to be followed so they don’t have much concentration on how to determine the repayment capacity. These practices lead to major problems within the industry,” she added.
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