2026-03-04 / Debate: Microfinance and Credit Regulatory Authority Bill - Second Reading and Committee Stage 2026-03-04
## Summary
Minister Pannilage introduced the Microfinance and Credit Regulatory Authority Bill, which seeks to repeal and replace the Microfinance Act No. 6 of 2016, establishing a comprehensive legal framework for the regulation and supervision of moneylending and microfinance businesses in Sri Lanka. He rebutted criticism that the Bill fails to protect customers, citing explicit consumer protection provisions stated in all three languages on the Bill's first page. The Minister provided historical context tracing Sri Lanka's community savings and credit mechanisms back to 1911, referencing the Grameen Bank model of "social collateral," and noted how the commercialisation of microfinance had led to widespread exploitation—particularly of women in the North and East—including predatory lending, excessive interest rates, and hundreds of recorded suicides. He outlined that the Bill would bring thousands of currently unregulated entities under a licensing and supervisory regime, while explicitly excluding institutions already governed by separate legislation, such as Provincial Council bodies, registered cooperatives, licensed pawning institutions, and Samurdhi programmes.
Hon. Deputy Speaker, today we are debating the Microfinance and Credit Regulatory Authority Bill. We are bringing this Bill primarily to repeal and replace the Microfinance Act, No. 6 of 2016. A key objective is to establish a robust legal framework for the regulation and supervision of moneylending and microfinance businesses in Sri Lanka.
It was said that customers are not protected by this Bill. But on the very first page it clearly states one of the purposes is “to provide for the protection of customers of moneylending and microfinance businesses.” That is expressly stated in all three languages. So this Bill is not only to regulate these businesses but also to protect customers—those who benefit from these services. Accordingly, we expect to regulate and supervise existing microfinance businesses and also ensure the safety of the millions of beneficiaries who receive services through them.
I also looked at the definition used for the microfinance sector. The Central Bank defines microfinance as the “provision of financial services to low-income people… It brings credit, savings and other essential financial services to people who are too poor to be served by regular banks… because they are unable to offer sufficient collateral.” Conventional banks are unable to serve those who cannot provide adequate security; hence the need for a microfinance sector.
Let me add some context. Small-scale credit and savings mechanisms linked with our communities have existed for decades. Savings and credit societies began in 1911—over 115 years ago. Over time, these programmes served poor communities to provide financial access. In South Asia, the Grameen Bank programme in Bangladesh, initiated by Prof. Muhammad Yunus, made a major transformation—organizing women into groups where leadership, collective feeling and mutual responsibility were nurtured. A key innovation was the concept of “social collateral.” When women lack land, houses or vehicles to pledge, group members provided mutual guarantees—social security within the group—to access loans, save and develop women’s entrepreneurship.
This process existed here too—through Janasaviya, later Samurdhi, and other state-supported efforts. Over time, however, as society changed, the model also shifted to different levels. The core concept was taken to the market as a business. The result was an explosion of commercial entities. Today, in the Central Bank’s register there are only four licensed microfinance companies, whereas thousands of entities operate in the microfinance space—much of it unregulated. Studies have revealed that women in the North and East were severely pressured by these players—loans were given without assessing capacity to repay; exorbitant interest was charged; many could not repay; and hundreds of suicides were recorded. Beyond that, households faced deep economic and human distress. Therefore, the need to regulate these institutions has clearly arisen.
Regulation must protect customers too. On one side, these institutions have been charging unconscionable interest and using unacceptable contracts. On the other, the public have been misled. Some entities took deposits and then could not repay, causing depositors to lose money. This extended beyond rural women—middle-class and higher-income individuals also deposited funds, and when institutions failed, they appealed to the then governments and the Central Bank. Without a legal basis, authorities could not act. We must protect depositors.
Hence, every microfinance institution must be brought into a licensing and supervisory net. At the same time, certain categories are excluded: institutions under Provincial Councils, cooperatives registered under the Cooperative Societies law, licensed pawning institutions, and programmes such as Samurdhi already established under specific statutes. This Bill is not about them. It is about those engaging in lending and providing financial services in the microfinance sphere without proper registration and licence. They must be licensed and supervised. That is why we are establishing this Authority—to regulate those businesses, not to control cooperative or funeral-aid societies.