Debt suicides continue unabated in Sri Lanka

Although microfinance loans represent only 3% of the sector’s total loan portfolio, their impact on low-income families is immense. According to the Movement for Land and Agricultural Reform (MONLAR), more than 200 people have committed suicide in the past three years or so for problems related to microfinance loans.

MONLAR official Chinthaka Rajapakshe revealed that women are pressured by thugs and debt collectors who come to villagers, using all types of recovery methods, including sexual favors. He also revealed that there were cases of borrowers trying to sell their kidneys to repay the loans. “Some of them had no choice, committed suicide. “

The majority of women trapped in this cycle come from poorer, war-affected areas, including the northern and eastern provinces where a large portion of the population still lives below the poverty line. The disastrous situation in their life forces them to turn to these micro-finance organizations which charge 220% for their loans. interest
An amount paid as remuneration for an investment or received by a lender. Interest is calculated on the amount of capital invested or borrowed, the duration of the transaction and the rate that has been set.
rate and apply compound interest.

While almost all sectors of the economy are most affected by the Covid-19 pandemic, low-income households and small businesses have been disproportionately affected because they have little savings or assets to spare. help them cope. In Sri Lanka, as in many other developing countries, microfinance institutions (MFIs) are at the forefront of providing financial services to the low-income population.

MFIs have gained popularity as an economic survival strategy in the lives of poor women. The main objective was to empower them by generating income for themselves or for their households. However, this has not been the case in many parts of Sri Lanka. Although MFIs can play an important role in terms of improving the lives of poor families, issues such as lack of national data on microfinance, high interest, weak legislative framework, weak coordination and methods of Illegal collections have thrown the lives of many borrowers. from the pan to the fire.

As the source of income for the majority of MFI clients is in the informal sector, MFI loan repayments have been affected. Farmers are unable to sell their products. They are forced to sell at a very low price as the supply chain is disrupted due to the pandemic. Many small businesses are also unable to operate their businesses with the uncertainty of when they can reopen.

Many Sri Lankan migrant workers have lost their jobs, leading to reduced remittances.

This has affected loan repayments to MFIs as remittances are a critical source of funds for many low-income households. According to the Financial System Stability Review 2020, central bank
central bank
The institution in a given state that is responsible for issuing banknotes and for controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the United Kingdom it is the Bank of England.

ECB: said the NPL ratio of microfinance loans continued to increase from 2017 and reached 30% at the end of September 2020 from 17.3 % end of September 2019. The NPL, ie the non-performing loan, is a bank loan subject to late repayment or unlikely to be repaid in full by the borrower.

MONLAR staged a demonstration on International Women’s Day, calling on the government to honor President Gotabaya Rajapaksa’s election pledge to cut microcredit loans. At the same time as the demonstration, the Collective of Women Victims of Microfinance launched a Sathyagraha from March 8. Chinthaka said “In October 2019, Rajapaksa, then a presidential candidate, promised to end microcredit, which is causing serious problems for the population. However, he is now silent on the matter.. “

Their demands are as follows:

  • All microfinance debt be abolished.
  • All microfinance debt collections cease immediately until a debt audit is performed.
  • All lawsuits against microfinance borrowers are stopped.
  • Remove all microfinance borrowers from the Sri Lanka Credit Information Bureau.
  • A banking system should be created for women in Sri Lanka.

The Central Bank is currently involved in drafting a New law on the Credit Regulatory Authority for Sri Lanka, which was approved by the Council of Ministers in 2019. This bill will replace the current Microfinance Law, No.06 of 2016 and will introduce a new regulatory framework applicable to people engaged in money lending business in Sri Lanka and will also establish new legal requirements related to consumer protection.

Speaking to the Daily Mirror, economist Dr. Chandana Aluthge stressed that the issue of microfinance must be given special attention and priority from the government because human lives are involved.

Microfinance offers small loans to people who are not normally eligible for traditional bank credit, to encourage self-employment or small businesses. For many recipients, it is a lifeline and very often it is the only way for them to start a business. Microfinance should develop and improve income-generating activities of low-income people. Therefore, it is expected that thanks to microfinance, the living conditions of low-income people will improve., “he explained.

However, all of these problems started because microfinance organizations are not very well integrated into the formal sector. One of the groups most affected by the pandemic were the self-employed. Due to lack of demand, lack of facilities and lack of cash, they faced the worst. As a country, even the government struggles to repay its loans. Even microfinance companies are also in the problem; their cash is also distributed.

It is important that the government understands the problem from both sides and comes up with a workable solution. It should not be forgotten that the majority of microcredit borrowers live below the poverty line in society. This year is a transition, I believe. By 2022, meanwhile, the economic situation will become more favorable. The government must address the grievances of these poor people. There is a lot of unnecessary spending on the part of the government. This issue needs to be given special attention and priority as human lives are involved.

The government shouldn’t be playing the role of Santa Claus all the time. But the authorities must realize the seriousness of the problem. When it comes to microfinance organizations, they also have a social responsibility beyond financial goals. It is preferable that they can discuss with the government to give borrowers a grace period of six months or one year. ”

Another problem is that many borrowers who come from low-income families more often than not have in-depth knowledge of financial management. Mr Aluthge was of the opinion that during the suggested grace period, the government should be able to support borrowers by educating them on how to better manage their finances. “Many of these families do not know what to do when large sums of money arrive.. “

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