{"id":117004,"date":"2021-08-11T17:25:42","date_gmt":"2021-08-12T00:25:42","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=117004"},"modified":"2021-08-11T17:25:42","modified_gmt":"2021-08-12T00:25:42","slug":"regulating-microfinance-credits-and-enhancement-of-productivity-part-2","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2021\/08\/11\/regulating-microfinance-credits-and-enhancement-of-productivity-part-2\/","title":{"rendered":"REGULATING MICROFINANCE (CREDITS) AND ENHANCEMENT OF PRODUCTIVITY PART 2"},"content":{"rendered":"

BY EDWARD THEOPHILUS<\/strong><\/em><\/span><\/h2>\n\n\n

The\nmajor areas of regulating microfinance should be included. Before regulating\nthe operation process of microfinance, it requires identifying the lender and\nthe business format of lenders that may be a sole proprietorship, partnership\nor a private company, or public company. Many micro-financing businesses are\nnot identified as business owners due to tax reasons. Therefore, regulating\nthem to register in a recognised format of business ownership is essential. In\nColombo, there may be more than a hundred lenders, and in each regional town,\nover five lenders are operating. The regulating process would generate\nadditional revenue for the government.<\/p>\n\n\n\n

  • Purpose of lending<\/li>
  • Amount of lending<\/li>
  • Collateral of lending<\/li>
  • Supervision of lending<\/li>
  • Repayment of Lending<\/li>
  • Restructuring and\nmonitoring of finance<\/li>
  • Remedial management<\/li>
  • Management of past due\nand legal actions<\/li>
  • Considering for borrowers\nwho were past due<\/li><\/ul>\n\n\n\n

    PURPOSE\nOF LENDING<\/strong><\/p>\n\n\n\n

    The\ncentral bank authority may know that the total lending of Sri Lanka is\nformidable to identify and the disaggregated data with the purposes cannot\nreconcile with the total portfolio, because many lenders are reluctant to\ndisclose the volume of lending, and many dislike identifying as lenders. It is\nnot a problem getting data from organized financial institutions, such as\nbanks, finance companies, and others. Informal lenders are averse to the\ndisclosure and the central bank needs to explain and give an ultimatum for\nregistration. Under the proposed regulation, the name of the lender, the amount\nlent and other information should be compulsory to provide. Finally, the\ncentral bank should be able to calculate disaggregated figures according to the\npurposes and reconcile them with total lending volume. <\/p>\n\n\n\n

    AMOUNT\nOF LENDING<\/strong><\/p>\n\n\n\n

    Microfinance\nshould be limited to an amount that is small size and if any person or\norganisation lends more than a limited amount, it should be considered as\neither retail or medium market or corporate lending. Microfinance could be\ngranted against collateral or the expected cash flow of the business project\nthat microfinance is expected to be used. This is called cash flow lending, and\nmicrofinance should be subject to cash flow lending. The amount of loan that\ncould be granted to a customer needs to decide by the lender and regulation\nregarding this area should be focused on various factors, such as the borrower’s\nability to pay back or creditworthiness, current obligations to other lenders,\nand other factors. Banks and financial institutions have credit policy and\noperation manuals are there and the regulation relating to the amount of loan\nshould be subject to the borrowing purpose and the injection for the purpose.\nWhen borrowers didn’t get sufficient funds, it would be a cause to\ndefault.  <\/p>\n\n\n\n

    COLLATERAL\nOF LENDING<\/strong><\/p>\n\n\n\n

    The\nterm collateral is used in the USA and it says in Sri Lanka security. Clean\nloans could be granted, signing a promissory note. Late Dr. Wickrema\nWeerasooria expensively did researches on this subject and published several\nbooks. Obtaining securities for microfinance is a grey area to talk about\nbecause there is a conflict between the aspect of commercial lending and\nmicro-credits. Granting clean loans is a highly risky task and helps to default\nas recorded in history.<\/p>\n\n\n\n

    Getting\na land mortgage is an arduous task as it needs to ensure the ownership of the\nland. The floating charge is not relevant for fixed securities.\nInter-se-guarantees, indemnity bonds, and personal guarantees, Paripasu bonds,\nand parate execution are complicated legal concepts, and regulating\nmicrofinance needs to consider all these concepts and it cannot be done ad hoc\nways. Many customers in the SME sector have no assets to keep as security.<\/p>\n\n\n\n

    MONITORING\nOF CREDITS <\/strong><\/p>\n\n\n\n

    The\nmajor reason to default micro-credit is a weak monitoring process. Monitoring\nof granted credit is a broader and complex process and many lenders (formal and\ninformal) do not successfully monitor how credit is used and how credit affects\nborrower’s life. The monitoring process should be associated with related\norganizations and should be more organized to classify the credit until they\npayback. The classification of granted credit is not done by lenders, and this\nhas been the major reason for defaulting credit.<\/p>\n\n\n\n

    Management\nof microfinance is a costly exercise and when grant credits monitoring should\nbe explained to customers and lender needs arranging such activities.  <\/p>\n\n\n\n

    REMEDIAL\nMANAGEMENT<\/strong><\/p>\n\n\n\n

    Remedial\nmanagement should be organized while monitoring granted credit, and there are\nmany strategies for the remedial process. Sometimes, customers may need\nadditional credit facilities or advice, or any other supports. Monitoring and\nremedial management should be regulated, and lenders and borrowers should be\neducated on this matter.<\/p>\n\n\n\n

    As\nI mentioned before, regulating microfinance is not a simple task the way\npoliticians think. The bill needs broadly discuss and different concerned\npeople may propose changes and the political authority needs listening to all\naspects. <\/p>\n","protected":false},"excerpt":{"rendered":"

    BY EDWARD THEOPHILUS The major areas of regulating microfinance should be included. Before regulating the operation process of microfinance, it requires identifying the lender and the business format of lenders that may be a sole proprietorship, partnership or a private company, or public company. Many micro-financing businesses are not identified as business owners due to […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[124],"tags":[],"class_list":["post-117004","post","type-post","status-publish","format-standard","hentry","category-edward-theophilus"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/117004","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=117004"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/117004\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=117004"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=117004"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=117004"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}