Sri Lanka: Govt. Writes Off Microfinance Debt

Jul 2018
Sri Lanka, July, 25 2018 - Cabinet yesterday approved a Cabinet paper presented by Finance Minister Mangala Samaraweera to write off non-consumption loans up to Rs. 100,000 given to women by all registered finance companies in a dozen districts and introduced an interest rate cap of 30% per annum on all future loans given by microfinance companies.

This scheme of relief initially will be limited to women who have obtained microfinance loans for non-consumption purposes in the drought-affected districts, the Finance Ministry said in a statement.

The 12 districts that were affected by the recent drought are Trincomalee, Ampara, Batticaloa, Jaffna, Mullaitivu, Kilinochchi, Vavuniya, Mannar, Kurunegala, Puttalam, Anuradhapura and Polonnaruwa where cultivations were affected consecutively for five seasons.

Finance Minister Mangala Samaraweera has said that women who obtained such loans amounting to Rs. 100,000 and below could apply for a complete write off of the interest and the capital payment. The General Treasury will reimburse the loss incurred by the microfinance companies for having written off the capital component. The Government has allocated Rs. 500 million for this year to initiate the reimbursement program. The microfinance companies will have to absorb the interest component of the loan written off.

“The persons who are to benefit by this debt relief program will be included on a priority basis to provide new loan facilities from an interest subsidy loan scheme launched under the Enterprise Sri Lanka program with a maximum two-year grace period. Further, they will also be given priority under the Government’s subsidised programs and other rural livelihood schemes implemented through co-operative societies as envisaged in the Budget 2018 proposal.”

Microfinance institutions are currently providing micro loans without collateral through a door-to-door strategy of high interest rate loans amounting to 40% -220% per annum for women seeking economic activities and income generation sources, the Finance Ministry statement added.

“When multiple loans are obtained under microfinance schemes, people have to pay much higher interest than the initial loan amount due to higher interest premium. So the Government has taken the timely action to protect rural women from falling into a debt trap by imposing an interest rate cap of 30% on future loans.”

Source : Daily FT

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