Micro Finance Act out soon; LMFPA confident of industry’s rapid progress

The Lanka Micro Finance Practitioners Association (LMFPA), as the apex body of MFIs, in its  bid to address and  create  awareness about development and current status of the industry including best practices  commenced a series of Enabling Dialogues, where CEOs, general managers, directors of companies engaged in micro-financing (including licensed commercial banks and non-bank financial institutions) are invited, along with microfinance regulators, policy makers, practitioners, technical service providers, microfinance and livelihood promoters and researchers, to an open forum.

The LMFPA, headed by Channa Jayatilleke, feels that “responsible micro-finance” is a must for all institutions offering MF, as it is a social enterprise.

At an Enabling Dialogue forum, aptly titled ‘Responsible Financing for MFIs’ this August, H.M. Ekanayake, Director of the Department of Supervision of Non-Bank Institutions of the Central Bank of Sri Lanka, spoke on a personal capacity on the upcoming Micro Finance Act and other pressing matters.

Ekanayake pointed out that, the Government would create an environment that encourages a diversity of institutions and financial products to serve the poor and more importantly, establish sound policies and laws to safeguard poor people’s money, promote competition and develop the technical expertise of the supervisory and regulatory authorities.

Addressing the long felt need for streamlined governance and regulation of the MF sector, the Micro Finance Act is now awaiting cabinet approval- in the past, four drafts were prepared but none made it through.

The open forum provided the opportunity for sector representative and experts to voice their concerns and probable solutions.

“LMFPA has planned several Enabling Dialogues, not only in Colombo, but in the regions as well. Our aim is to expedite the implementation of the regulatory framework so that the micro financing sector will be further strengthened to better serve those in need. We have already conducted Enabling Dialogues in Ratnapura, Kandy and Hambantota and have planned to have same in Badulla and Batticaloa. In Jaffna, we have commenced an ongoing series of EDs, the response is very encouraging,” stated Imran Nafeer, Secretary of the LMFPA.

The contribution by micro finance institutions in Sri Lanka is very crucial in providing access to financial services to the low income segments. Further, the client base of MF providers is high.

Key concerns too were highlighted, especially managing social performance of MFIs while developing new products and reaching new segments of the population, looking at multiple borrowing and over- indebtedness, ethical recovery and building social capital.

MF practitioners would be well versed to acknowledge that the safety and soundness of the MF sector, best business practices for customer protection, building up of public confidence, and maintaining the stability of the financial system are of utmost importance.

The participants also spoke of the need for instilling of client protection principles. Sometimes, MFI clients did not know the exact amount they had to pay back at the end of the month, which is one of the key reasons behind the snowballing debt faced by them. Further, the importance of client education, especially financial literacy of the clients was also discussed.

MFIs are at present facing a fund crisis; one reason for this is that they are prevented from accepting deposits (savings accounts) as the sector is not regulated pending the establishing of a regulatory policy.

The MF sector is also plagued by the limitation of available products – a more diverse range of products could pave the way in increased pay-back opportunities and fulfilling needs of clients.

The dire need of the sector for a Credit Information Bureau (CRIB) was also discussed. The somewhat prohibitively high cost of its establishment and operation was pointed as the reason for the delay in implementing same.

It was suggested that a funding agency be approached to bear the cost of implementation of MF CRIB.

In its absence, the need for the sharing of customer information was brought out, however it was keenly stressed that the data confidentiality of the customers should be honoured.

In the meantime, organisations such as the Lanka Micro Finance Practitioners Association will continue to lobby for changes, improvement and development of the sector and work with policy makers to bring the MF Act into operation soon – thus enabling a better future for the sector and empowering its contribution to the development of the nation.