MICROCAPITAL BRIEF: Central Bank of Sri Lanka Hopes Third Time is Charm for Microfinance Institutions Law

The Central Bank of Sri Lanka (CBSL) has reportedly floated a third draft of legislation to regulate microfinance institutions (MFIs) with the intent of ensuring financial stability in the sector. The draft proposes a three-tier system of regulation whereby the principal responsibility for regulation would fall under the Monetary Board of the Central Bank of Sri Lanka. Large MFIs would come under the supervision and examination of CBSL, while small MFIs would come under the supervision of CSBL-approved audit firms. The threshold that would separate large MFIs from small ones has not been proposed. MFIs backed by national or provincial government would be supervised by the Commissioners of Cooperative Development, the Commissioner of Agrarian Services or the Samurdhi Authority, with CBSL retaining the power to set principles and standards for the supervision carried out by these institutions.

The bill also specifies the definition of microfinance and MFIs, the categories of persons or enterprises that may apply for a license to provide microfinance services, limitations on which services may be provided, and the terms and conditions relating to fixed interest rates on deposits and loans. Whether an interest rate cap would be established has not been specified. While there was no consultation between stakeholders and legislators on the draft, it is expected that there will be such consultation before MFI Draft Bill No. 03 is sent to the Cabinet of Ministers for approval.

By Jennifer Young, Research Associate

About the Central Bank of Sri Lanka (CBSL):
Established in 1950, the Central Bank of Sri Lanka (CBSL) is the nation’s central banking authority. The core responsibilities of CBSL are to ensure the stability of the nation’s financial sector as well as the economy as a whole. Ajith Nivard Cabraal was appointed governor of the institution in 2006 and continues to serve in that capacity as of 2012.

Sources and Additional Resources:

DailyFT Story: “Regulation of Microfinance Institutions”
http://www.ft.lk/2012/09/04/regulation-of-microfinance-institutions/

MicroCapital Story: “MICROCAPITAL BRIEF: Central Bank of Sri Lanka (CBSL) to Regulate Microfinance Institutions (MFIs)”, April 20, 2011.
https://www.microcapital.org/microcapital-brief-central-bank-of-sri-lanka-cbsl-to-regulate-microfinance-institutions-mfis/

MicroCapital Universe Profile: Central Bank of Sri Lanka
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Central+Bank+of+Sri+Lanka+%28CBSL%29

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