Sri Lanka: Government To Rescue Hundreds Of Families From Micro-Finance Debt Trap


The Sri Lanka overnment has decided to write off more than Rs. 1 billion worth of micro-credit loans given by state and private financial institutions in the Northern, Eastern and North Central Provinces. State Finance Minister Eran Wickramaratne told thatthe Government intervention was to ease the hardships caused to families which had been severely affected by this debt crisis.

“As the Government will bear the cost for the debt relief, this initiative will be carried out through government institutions since we are dealing with the taxpayers’ money. Details are being worked out,” he said. The Central Bank as the regulator of micro-finance institutions , is also involved in this initiative and would on July 22 issue a statement, giving details and procedures.

It also learns that the repayment scheme for those caught in the debt trap would cover loans of Rs. 100,000 or less. The beneficiaries will also include women-headed households in eight drought-affected districts of the three provinces. The Treasury has allocated more than Rs one billion for this purpose.

The State Minister said that unregulated lenders had indulged in ‘bad credit parctices’ in the war-affected areas, at a time when people were trying to rebuild their lives. Some unregulated companies ventured to these places just to make money. The war-affected people were not familiar with the practices of microcredit schemes and their crisis had even affected their social life, while the companies were indifferent to the plight of these debt-ridden people, the state minister said. According to the Finance Ministry’s 2017 report, 11 new applications sought licences to engage in micro finance lending last year. The total outstanding loan portfolio of major state micro finance institutions stood at Rs. 263 billion at the end of last year.

The Government expected micro finance companies to improve the living standards of rural people by providing accessible and affordable credit facilities which in turn would strengthen the rural economy, but bad lending practices by unregulated financial institutions had led to a booming debt crisis in remote villages of the war-affected areas.

This week alone, a least two suicides relating to micro-finance debts were reported from the Alayadivembu area in the Ampara district. According to a civil society organisation, more than 60 suicides so far this year were linked to family disputes arising from micro-finance debt problems.

During an official visit to the north in April, Central Bank Governor Indrajit Coomaraswamy announced a six-month moratorium for loans up to Rs. 50,000 obtained by residents of the Northern Province. The moratorium period is still effective in the region but many beneficiaries are not aware of this. Meanwhile, a Tamil National Alliance (TNA) delegation led by senior leader Maviai Senathirajah met Prime Minisiter Ranil Wickremesinghe on Wednesday at Temple Trees to urge him to provide immediate relief to those caught in the micro-finance debt trap. The TNA MP said the Premier agreed to do so.

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