2026-03-04 / Debate: Microfinance and Credit Regulatory Authority Bill - Second Reading and Committee Stage 2026-03-04
Hon. Kabir Hashim acknowledged the Bill's timeliness while identifying two fundamental deficiencies: the exclusion of licensed banks and non-bank financial institutions (NBFIs) from the regulatory scope, and the inappropriate treatment of community-based and voluntary organisations under the same framework as commercial lenders. He argued that banks and NBFIs, citing examples such as LOLC Finance PLC with Rs. 24 billion in microfinance exposure, are significant contributors to over-indebtedness among low-income and informal sector workers, and that their exclusion reflects continued Government deference to banking interests. On behalf of the Opposition, he proposed an amendment to expressly bring licensed banks and NBFIs within the Bill's regulatory purview. He further contended that community-based organisations, which have historically served those excluded from formal finance, require a lighter-touch regulatory framework rather than the full compliance burden imposed on commercial microfinance institutions.
Hon. Deputy Speaker, today we debate an important and timely Bill. However, although the Government says it has tabled amendments, they were not clearly provided to Members. I had to search for them; they should have been made prominent. As I have little time, I will proceed on the text before us.
On microfinance and credit regulation, Sri Lanka has a long history. Credit co-operatives began in the early 1900s. After 1977, the UNP Government significantly supported this sector. Late President R. Premadasa launched “Jana Saviya” in the 1980s based on strengthening microfinance. In 1990, under the UNP, the Integrated Rural Development Programme expanded microfinance to empower low-income groups and voluntary organisations.
In 2016, under the Yahapalana Government, a Bill was brought on this sector, but a Supreme Court decision halted it. Again, by Gazette of 27 October 2023, the Government of President Ranil Wickremesinghe sought to bring a Bill to Parliament on 9 January. However, the Government did not consult stakeholders or conduct a broad public dialogue. Seven petitions were filed in the Supreme Court, and the process was stayed.
Now the Bill is back. It is timely—but I see key deficiencies. Consider Sri Lanka’s informal sector: about 65% of the labour force—some 5.5 million people—work in it, contributing 32–40% of GDP. They are street vendors, petty shopkeepers, handcart traders, home-based workers, daily-wage labourers, small farmers, fishers, three-wheeler owners, masons, carpenters and the self-employed. This law should benefit them. Many of them likely voted for this Government. Community-based and voluntary organisations should be pleased—but they are worried. Why? Because seeing how this Government has been subservient to the rice mafia, the cricket mafia, and the energy mafia, they now fear this Bill will hand microfinance to a banking mafia.
Therefore, we propose an Opposition amendment: licensed banks and non-bank financial institutions (NBFIs) must be expressly brought within the scope of this law. In 2023, their exclusion led to Supreme Court action. Even in this Bill, Section 3 speaks only of coordination with the Central Bank regarding registered co-operatives and Samurdhi banks. There is no direct regulation of banks, large finance companies and leasing companies here. They would remain free to lend microcredit at any rate. We strongly oppose that; they must be regulated by this Act.
The Supreme Court relied on the Central Bank’s 2019 Report, which suggested that multiple borrowing from microfinance entities caused over-indebtedness. We do not accept that interpretation alone. Banks and NBFIs have massively lent to the informal sector, the low-income and micro-entrepreneurs, driving over-indebtedness. We can show this with data. That is why we suspect the Government is still shielding the banking lobby. For instance, according to LOLC Finance PLC’s 2024/2025 Annual Report, it had Rs. 24 billion exposure to microfinance. Commercial Credit and Finance PLC, Alliance Finance Company PLC, and Mercantile Investments and Finance PLC are also active. If they are not regulated here, what happens? The small people will be squeezed.
In district courts, around 95% of the large case load against workers and three-wheeler owners is filed by banks and NBFIs. Therefore, we urge immediate regulation of these entities under this law.
Finally, the Bill’s biggest flaw: community-based and voluntary organisations are effectively treated like licensed lenders, subjecting them to the same regime. Historically, these groups provided credit to people excluded from formal finance—to help them start livelihoods. They were not governed by rigid prudential rules. Treating them like commercial microfinance institutions is wrong. They need a tailored, lighter-touch framework, not the same compliance burden as large lenders.