MICROCAPITAL BRIEF: With Delinquency Up 24%, Sri Lanka Paying Off Women’s Microfinance Loans, Capping Microloan Interest Rates

Sri Lanka’s Ministry of Finance recently announced that it has placed a cap on the interest rate microfinance institutions (MFIs) can charge borrowers at 30 percent per year. This comes as the Central Bank of Sri Lanka has found the microfinance sector’s gross non-performing loan account to have risen to LKR 66 billion (USD 428 million), a 24-percent increase during 2017. This figure includes loans with payments at least 90 days overdue. While many loans in the country are priced at around 40 percent interest, reported rates range as high as 220 percent.

In addition to the rate cap, the Sri Lankan government has allocated LKR 500 million (USD 3 million) for a program whereby women residing certain areas may apply for loan forgiveness. The program is valid in 12 districts of the country’s North and North Central provinces, which have relatively high numbers of woman-headed households and recently have suffered drought conditions. To apply for the program, a person’s loan must have been for a purpose other than consumption and must not have exceeded LKR 100,000 (USD 625). MFIs whose borrowers are approved for loan forgiveness will be reimbursed by the General Treasury of Sri Lanka.

Established in 1950, the Central Bank of Sri Lanka is charged with maintaining the stability of the nation’s economy. As part of this mandate, it regulates the microfinance industry.

By Nicholas Galimberti, Research Associate

Sources and Additional Resources

Sri Lanka Ministry of Finance press release
http://www.treasury.gov.lk/documents/10181/50545/2018_07_24+Government+writes+off+loan.pdf/df514216-28fa-4c13-8554-7372674fecb2?version=1.0

Daily Financial Times article
http://www.ft.lk/front-page/Cabinet-paper-capping-microfinance-interest-rates-to-be-presented-today/44-659642

Next Billion article
https://nextbillion.net/whats-ailing-sri-lankas-microcredit-industry-and-could-fintech-provide-a-solution/

CBSL background
https://www.cbsl.gov.lk/en/about/about-the-bank/overview

CBSL microfinance sector regulations overview
https://www.cbsl.gov.lk/en/financial-system/financial-system-stability/microfinance-sector

CBSL annual report
https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/annual_report/2017/en/11_Chapter_07.pdf

CBSL Recent Economic Developments 2017 report
https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/publications/red/red_2017e.pdf

MicroCapital Brief; October 21, 2012; Central Bank of Sri Lanka Hopes Third Time is Charm for Microfinance Institutions Law
https://www.microcapital.org/microcapital-brief-central-bank-of-sri-lanka-hopes-third-time-is-charm-for-microfinance-institutions-law/

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