Cabinet nod for Govt. to write off microfinance debt

Jul 25, 2018 (LBO) – Sri Lanka’s  government approved a Cabinet paper to write off non-consumption loans up to 100,000 rupees given to women by all registered finance companies. 

“This scheme of relief initially will be limited to women who have obtained microfinance loans for non-consumption purposes in 12 drought-affected districts, the Finance Ministry said in a statement.

“The government has taken timely action to protect rural women from falling into a debt trap by imposing an interest rate cap of 30 percent on future loans.”

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 500 million rupees for this year to initiate the reimbursement program. The microfinance companies will have to absorb the interest component of the loan written off.

Microfinance institutions are currently providing micro loans without collateral through a door-to-door strategy of high interest rate loans amounting to 40 percent -220 percent 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 percent on future loans.”