The government of Sri Lanka has initiated decisive measures to rein in informal microfinance operators accused of exploiting economically vulnerable communities, signaling a major shift in the country’s financial oversight framework. Officials say the move is aimed at protecting low-income households who have long been targeted by unregulated lenders operating under the pretext of providing financial assistance.
A senior official from the Ministry of Finance confirmed that a new bill is being drafted to establish a dedicated Microfinance and Credit Regulatory Authority of Sri Lanka. The proposed body will be tasked with safeguarding the rights of borrowers, ensuring transparency in loan approvals, and introducing stricter supervision of institutions engaged in microfinance activities. Authorities are also considering amendments to the existing Microfinance Act No. 6 of 2016 or the introduction of a new law to strengthen enforcement powers.
The Microfinance Act No. 6 of 2016 was originally enacted to license, regulate, and supervise microfinance companies, requiring them to register formally, manage financial funds responsibly, and operate under regulatory oversight. The law mandated that microfinance businesses obtain licenses from the Monetary Board, bringing licensed microfinance companies under the supervision of the Central Bank of Sri Lanka. Certain cooperative societies and development-based institutions were also brought within its regulatory scope through special provisions.
Despite these measures, authorities have identified gaps that allowed informal lenders to function outside the legal framework, often charging excessive interest rates and using coercive recovery practices that disproportionately affected rural populations. The new regulatory initiative seeks to close these loopholes by tightening monitoring mechanisms and clarifying legal boundaries for all credit providers.
Officials emphasized that accepting deposits from the public will remain an activity strictly limited to banks and financial institutions registered with the Central Bank, and that unauthorized entities will be barred from collecting funds under the strengthened legal regime. The government views the reforms as a necessary intervention to prevent financial exploitation, promote ethical lending, and create a more sustainable and accountable microfinance environment for underserved communities across the country.
