The proposed Microfinance and Credit Regulatory Authority eliminates people’s right to organize credit services to suit their development needs by deeming any community savings and credit initiative illegal unless licensed. Promoted to regulate the unregulated and address the microfinance crisis, the Credit Regulatory Authority extends a set of overarching regulations imitating the Banking and Finance Act on Community-Based Savings and Credit Providers (CBOs). CBOs engaged in savings and credit range from the Funeral Aid Societies and Women’s Organisations to Sarvodaya Shramadana Societies. At present, they address the credit needs of low-income women, farmers, fishers, and others excluded from the formal finance sector, providing alternatives to predatory microfinance. However, suggested regulations dismiss their unique character as an interface between the formal and informal, performing a vital social welfare and developmental role at the grassroots. The Authority’s thrust weakens CBOs, threatening low-income people’s ability to manage their economies and ultimately eroding their financial sovereignty.  

The Credit Regulatory Authority is tasked with a range of activities from issuing an annual license, determining educational and professional qualifications of the officials of CBOs, interest rates, deposits, credit mechanisms, the ratio of Non-Performing Loans to the total loan portfolio, investigating complaints, provide guidelines for consumer protection to conducting credit counseling to borrowers. Registered CBOs are commanded to annex ‘Microfinance’ to their name. All lending organizations registered under the Microfinance Act of 2016, Societies Ordinance (Chapter 123), Voluntary Social Service Organizations (Registration and Supervision) Act No. 31 of 1980, Companies Act No. 07 of 2007, and Partnership Ordinance (Chapter 83) are required to take a license as a Microfinance Institution. Licensed Commercial Banks (LCBs) and Licensed Finance Companies (LFCs) are exempted from regulation.

The Authority wields discriminatory control over CBOs engaged in not-for-profit savings and credit services while creating an open field for profit-driven LCBs and LFCs. The Central Bank of Sri Lanka (CBSL) and the Government justify the exemption under the pretext that LCBs and LFCs are “stringently regulated”. On the contrary, CBSL regulations for LFCs issued in August 2023 do not contain a single regulation on microfinance. The interest rate cap at 35% introduced in December 2018 was also removed in June 2022. Even though microfinance might not be a core function of the LFCs, their microfinance lending and client base outperform all CBOs, Cooperatives, SANASA, Sarvodaya, and Microfinance Institutions. In addition, the government also discount a sea of evidence against LFCs like LOLC, HNB Finance, Commercial Credit, Commercial Leasing, Bimputh, and Nation Lanka for trapping borrowers in multiple loans, subjecting borrowers to financial violence and compelling them to commit suicide. LOLC is also under fire in Cambodia for engaging in predatory microfinance.

Victims of Microfinance and CBOs have come together to form the National Collective of Community-Based Savings and Credit Services Providers (NCCBSCP), to advocate interests of all CBOs practicing community credit and savings across the country. Starting from challenging the Bill in the Supreme Court, the National Collective also mobilises Members of the Parliament, seeking their support to defeat the Bill. The National Collective calls for more comprehensive consultations with victims and CBOs to formulate a regulatory mechanism differentiating CBOs, LFCs, LCBs, and money lenders. Key demands of the Collective are,

01.       Exclude LFCs from engaging in microfinance lending.

02.       Conduct a debt audit and abolish odious microfinance debt.

03.       Strengthen CBOs engaged in credit and saving services.

04.       Revitalise Sri Lanka Savings Bank created to finance CBOs engaged in credit and saving services.

05.       Stop criminalising debt.

06.       Stop abusing the judiciary mechanism to recover unpayable debt. 

07.       Create a legally enforced mechanism to protect borrowers.