Micro finance sector hails regulatory mechanism

By Lalin Fernandopulle

The micro finance sector hailed the long overdue and much anticipated Micro Finance Act (MFA) which will provide a regulatory mechanism and the legal clout to the micro finance sector, as a commendable move to develop a vibrant micro finance industry in the country.

The gazette in this regard was published on July 11 bringing the Act into operation. The Micro Finance industry, which serves a large segment of the population, primarily women, at the bottom of the economic pyramid, has not been under regulation opening up opportunities for pyramid scheme racketeers such as the infamous, Sakvithi and Danduwan Mudalali to fleece the public.

Lanka Microfinance Practitioners’ Association (LMFPA) Manager Yashitha Munasinghe said the LMFPA has been lobbying for a regulatory framework for the micro finance sector over nearly a decade and added that as better late than never the Act will be a catalyst to expand the micro financing industry under a proper regulatory apparatus.

A regulatory framework for the industry was a dire need to provide legal recognition to micro finance institutions (MFIs) who play a pivotal role in offering micro, small and medium sector entrepreneurs’ access to finance.

The LMFPA commended the move as a timely intervention to enable MFIs to mobiles

opportunity to MFIs to obtain membership from the Credit Information Bureau (CRIB) which monitors the credit history and credit worthiness of its members. Banks, leasing and micro finance companies are members of CRIB.

The MFA empowers the Central Bank to issue licences to public limited micro finance companies and directly supervise them. Micro finance NGOs and micro credit NGOs will come under the supervision of the NGO Secretariat under the direction of the Central Bank.

Micro finance Consultant Imran Nafeer said the MFA provides the legal identity to MFIs and connects them with the mainstream finance industry in the country. The Act will help mitigate risk in transactions and protect clients from fraudsters. A large number of MFIs operate in the country and the performance in terms of recovery has been noteworthy. “The Act will help MFIs to expand services and improve the quality of services”, Nafeer said. Banking with the Poor Network Chairman Chandula Abeywickrema said there is a need for a vibrant micro finance industry to develop the SME sector and added that the Micro Finance Act will support this cause through a regulatory environment.

Access to finance has been a major impediment to SMEs, the backbone of the economy due to banks being reluctant to lend to such enterprises owing to the lack of security.

However, micro finance experts said recovery rate from SMEs has been around 99 percent.

President, National Chamber of Commerce of Sri Lanka, Thilak Godamanna said the Chamber hails the enforcement of the Act which will develop the micro finance industry which provides finances to SMEs to make a salient contribution to the economy. Mcro finance is considered an effective mode for poverty alleviation by governments, international organizations and donors. However, studies reveal financial services alone are not adequate to improve the living standards of the low income segment. According to industry experts it is vital that MFIs go beyond providing credit and share expertise to create sustainable micro-enterprises.