2026-03-04 / Debate: Microfinance and Credit Regulatory Authority Bill - Second Reading and Committee Stage 2026-03-04
## Summary
Hon. Lakmali Hemachandra outlined the legislative history of microfinance regulation in Sri Lanka, explaining that the current Bill repeals the Microfinance Act No. 6 of 2016, which failed to achieve effective regulation despite establishing a framework covering both microfinance institutions (under the Central Bank) and community finance organizations (under the NGO Secretariat). She noted that the 2024 Bill establishing the Sri Lanka Microfinance and Credit Regulatory Authority was subsequently shaped by a Supreme Court determination that all entities engaging in microfinance — not just select categories — must fall under the Authority's jurisdiction. The speaker specifically raised the Sectoral Oversight Committee's recommendation that regulations should distinguish between predatory lenders and women-led community finance societies, which operate on a membership basis at low interest rates and pose minimal default risk, arguing these groups should not be subject to the same regulatory treatment. She concluded with an assurance that the Government would craft implementing regulations in a manner sensitive to the needs of community finance organizations, particularly those benefiting rural women.
Thank you, Hon. Presiding Member, for the time. The Opposition has not argued much against this Bill, though a few points were raised. It is important to understand the evolution of this law and what lies ahead.
This Bill repeals the Microfinance Act, No. 6 of 2016, which was the first law to regulate microfinance. Under that Act, microfinance institutions and what we now call “community finance organizations” were both regulated — the former under the Central Bank, and the latter under the NGO Secretariat. Banks and finance/leasing companies were excluded from that 2016 framework as they were already under the Central Bank.
A key issue was the definition of “microfinance,” which included community finance. So the concept of “community finance” was already within the microfinance definition. Despite the 2016 Act, proper regulation was not achieved.
Only a handful of institutions actually registered as “microfinance institutions,” yet many entities practiced predatory lending — especially harming women — providing high-interest loans without collateral. Many of those operated as banks or finance/leasing companies and were outside the 2016 Act.
Therefore, in 2024, a Bill was brought to strengthen regulation by creating the Sri Lanka Microfinance and Credit Regulatory Authority, moving both categories — those under the Central Bank and those under the NGO Secretariat — under this Authority. The criticism then was that major financial institutions — banks and leasing companies — were kept outside the Authority. Petitions were filed, and the Supreme Court determination made clear that you cannot give such a special carve-out; essentially, all entities engaging in microfinance should be subject to regulation by the Authority, with certain exceptions (as already in law) for co-operatives, agrarian societies, etc.
Let us be frank: the concept of community finance has long been within the definition of microfinance. At the Sectoral Oversight Committee on Economic Development and International Relations, we met twice with community finance organizations, discussed concerns, and issued recommendations, including that, by regulation or other means, women-led community societies should not be treated the same as predatory lenders. There is a qualitative difference: community societies operate in villages, on membership, at very low interest, with much lower default. Recognize this difference through regulations or future amendments.
If those who spoke today had addressed these matters in 2016 or in 2024 at the right moments, we may not be here now. Our responsibility as a people-centered Government is to craft this law in a way that benefits people — especially women — and does not impose harsh, ill-suited controls on community finance. With that assurance, I conclude. Thank you, Hon. Presiding Member.