The Hon. (Dr.) Upali Pannilage - Minister of Rural Development, Social Security and Community Empowerment

¶ 01 Hon. Deputy Speaker, today we debate the Microfinance and Credit Regulatory Authority Bill. The intention is to replace the Microfinance Act, No. 6 of 2016, and establish a stronger legal framework to regulate and supervise money lending and microfinance businesses, and importantly, to protect customers.

¶ 02 The very first page of the Bill clearly states one key purpose: to provide protection to customers of money lending and microfinance businesses. Thus, beyond regulation and supervision of the sector and its millions of beneficiaries, customer protection is central.

¶ 03 By definition, microfinance provides financial services to low‑income people who are too poor to be served by regular banks because they cannot provide sufficient collateral. Our traditional banking system often cannot serve them for that reason. Therefore, microfinance evolved to fill this gap.

¶ 04 Sri Lanka’s small‑scale finance has existed for over a century. Savings and credit co‑operatives began in 1911. These efforts have long supported the poor. Yet today, regulation is essential. We must also remember the sector’s positive contributions: Grameen Bank in Bangladesh, begun under Prof. Muhammad Yunus around 1983, organized women into groups; about 97% of its clients were women, fostering collective action and leadership.

¶ 05 Sri Lanka learned from such models. In the 1970s, the NORAD‑funded Hambantota Integrated Rural Development Programme developed social mobilization; from that came women’s “Jana Shakthi” bank societies. “Janasaviya” later built on these experiences, followed by “Samurdhi,” and subsequent reforms. Today, under Samurdhi, there are over four million members and more than 1,097 banks. In 2026, we plan Rs. 60,000 million in loans to uplift micro and small entrepreneurs.

¶ 06 A vital local innovation was “social collateral”—group‑based guarantees in the absence of physical collateral—enabling women to access credit, save, and grow enterprises. However, as society changed—values, trust, and social cohesion shifted—the model suffered. If one borrower defaulted, other group members could also be blocked from borrowing. Meanwhile, commercialization pushed the activity beyond village mutualism into a market dominated by aggressive business interests, eroding the original trust‑based mechanisms.

¶ 07 Today, although only four entities are registered with the Central Bank under the current framework, thousands operate informally. Studies show severe distress among women in the Eastern Province due to unconscionable interest and unfair recoveries, even leading to hundreds of suicides. Families suffered deep economic and psychological harm. Thus, regulation is imperative.

¶ 08 At the same time, protecting depositors is vital. We have seen cases where some institutions took deposits and then could not repay, harming even middle‑income urban depositors. Since there was no legal basis to intervene, authorities could not secure these depositors’ funds. Therefore, we must license and supervise those who lend and mobilize funds in this space. This Bill does not target co‑operatives, provincial/local authority‑regulated bodies, entities registered under other specific laws (e.g., Pawn Brokers Act institutions, registered co‑operative societies, Samurdhi institutions, Farmer Organizations under relevant legislation). Those are carved out. The Authority is to regulate those currently operating without proper licenses and oversight.