{"id":117006,"date":"2021-08-11T17:27:54","date_gmt":"2021-08-12T00:27:54","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=117006"},"modified":"2021-08-11T17:27:54","modified_gmt":"2021-08-12T00:27:54","slug":"regulating-microfinance-credits-and-enhancement-of-productivity-of-micro-business-part-1","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2021\/08\/11\/regulating-microfinance-credits-and-enhancement-of-productivity-of-micro-business-part-1\/","title":{"rendered":"REGULATING MICROFINANCE (CREDITS) AND ENHANCEMENT OF PRODUCTIVITY OF MICRO BUSINESS PART 1"},"content":{"rendered":"

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

Microfinance\nfor various small businesses (including agriculture) has been a vital support\nfor the economic development and the growth of Sri Lanka since the beginning of\nthe economic activities of the country. Microfinance helped non-economic\npurposes such as giving dowry, spending for weddings, funerals, and many other\npurposes helped in the management of human affairs. In history, how microfinance\nhad been operated cannot clearly state, however, it was a private business and\nthe government regulation did not apply. It is difficult to identify a fixed\nbeginning of credit support for the variety of small businesses and services,\nhowever, microfinance is informally operated in the country in various names or\nformats, and the publication of Robert Knox carries a picture and little\ndetails of microfinance (Knox, Robert (1681), A Historical Relation of the\nIsland of Ceylon, translated by David Karunaratne in 1959, Page 260-262), that\nreflects the truth about microfinance in history. The Mahavamsa describes that\nthe 13th<\/sup> King of Sri Lanka spent three hundred thousand (pieces of\nmoney) to free Buddhist bhikkus (Monks) from indebtedness so microfinance had\nbeen in the country and no doubt that since before Christ (The translation of\nMahavamsa by Wilhelm Geiger 1912, PP 258-259) microfinance had been operated in\nSri Lanka.   <\/p>\n\n\n\n

Historical\nexperience in the management of microfinance invites the attention of the\ngovernment to develop policies and regulations for the operation of\nmicrofinance. It was an indispensable role of the government. The Central Bank\nof Sri Lanka is the regulatory authority for the financial system, which\nincludes microfinance, too. However, the Central Bank has not done a complete\njob. Why the authority has neglected, the role is known by Gods, not any\nothers.<\/p>\n\n\n\n

Commercial\ncredits were known by people through the operation of trading banks and other\nfinancial institutions, however, the operation of Gramin Bank in Bangladesh,\nwas known to the world about microfinance operation, and when Noble Price was\nawarded to the leader of the Gramin Bank in Bangladesh, it was developed world.\nNow people of the world know what is microfinance and how it is important for\nlower-income earners to get rid of poverty. \n<\/p>\n\n\n\n

The\nexplanation of Knox shows the management of microfinance in history was cruel\nwhen customers defaulted the repayment the modern management and if it can go\nback to history, it might seem that the open market system would not work\nsupporting small businesses. The example of Mahavamsa shows that the release of\nborrowers from indebtedness was done by the government. The regulation and laws\nin the history of the applied that are effective today, it could be seen people\nare carrying heavy stones on the back everywhere. This means many defaulters of\nrepayment today are in the country and will be subject to punishments.\nTherefore, today needs regulation and when the Central Bank cannot do so, it\nneeds political leadership to consider while educating the public about the\nrepercussion of the operating of microfinance.<\/p>\n\n\n\n

Microfinance\noperates in a broader area that involves many lenders and borrowers for many\npurposes and is essential to small business operations, as business needs\nworking capital frequently. Dr.N. M. Perera, when he was the Minister of\nFinance, explained in a budget speech the major reason for the failure of\nmicrofinance in the country and identified two reasons, when people borrow money\nfor a business purpose, they would use such money for consumption if they have\nnot income to spend for consumption, and when borrowed money used for\nconsumption expected cash inflow would be weakened and repayment of the loan\nwould be a failure. <\/p>\n\n\n\n

When\nlogically thinks 80% of the population associates with the microfinance field\nand identifying all coliseum of borrowing relate to microfinance and regulating\nand policymaking may be a complicated task. Usually, microfinance is related to\nproduction activities in history, but in the modern era, it is applied for\nvarious purposes such as wedding spending, giving dowry, and many others. In\ndeveloped countries, microfinance is called personal loans that operate in a\nbroader area. <\/p>\n\n\n\n

I\ndo not know how many researches have been conducted on the matter and making\nregulation covering all aspects of micro-financing may not be successful or\npossible either, and when deeply analyse the effort of the state minister it\nmight be a reason to lose votes to the government and when submitting the bill\nto the parliament, many slogans and rallies outside the parliament would be\nincurred as a protest against the bill. <\/p>\n\n\n\n

Mr.\nShehan Semasinghe has not disclosed so far what contents they include in the\nproposed bill. Most probably, the bill has been drafted by persons who have no\npractical experience of micro-financing. The borrowing small quantum of money\nincurs in Sri Lanka in the way of mortgaging pieces of jewelry to informal\nlenders at a higher rate of interest. Sometimes, these informal lenders charge\n15% monthly interest, which means the annual rate of interest could be 180%.\nLater, Peoples\u2019 bank began micro-financing scheme called Athamaru\u201d how far it\nwas successful or was a failure is unknown to people. <\/p>\n\n\n\n

Micro-credits\ncontain a broader area and feel like bacillus in Sri Lanka because it operates\nmany areas and regulating entire micro-credit is a complex task. Many credits\nrelate to informal borrowers and lenders. Sometimes, microfinance may deal with\nthe illicit drug business. How to identify these informal businesses. The\nidentification of their issues for regulating purposes may difficult.   <\/p>\n\n\n\n

Multi-purpose\ncooperatives and rural banks had been operating in Sri Lanka to provide\nmicrofinance for members, the establishment of Peoples\u2019 Bank as an initiative\nof Mr. Philip Gunawardane and Mr. Ronnie de Mel took over many microfinance\nbusinesses to the Peoples\u2019 Bank. Later, after the JVP insurrection in 1971, the\ngovernment introduced two major acts, which were land reforms and supports for\nreforms in the agricultural sector. The authority in acts permitted\nestablishing Agricultural Service Centres. These two laws supported the Bank of\nCeylon to embark the market operating branches in Agricultural Service Centres.\nHowever, they were closed down when Mr. Felix R.D Bandaranaike was the minister\nof finance. Microfinance in the Bank of Ceylon was called cultivation loan and\nlater I found that the total volume default of agricultural credits in the\ncountry was less than the default of a single corporate customer in Colombo. <\/p>\n\n\n\n

When\nregulating microfinance operations the government should take some\nresponsibilities as in the way King Siri Naga or Voharika Tissa played, when\nDr. N. M. Perera was the minister of Finance there was a Credit Guarantee and\nRe-finance schemes, later the credit guarantee scheme was abandoned by the\nCentral Bank.<\/p>\n","protected":false},"excerpt":{"rendered":"

BY EDWARD THEOPHILUS Microfinance for various small businesses (including agriculture) has been a vital support for the economic development and the growth of Sri Lanka since the beginning of the economic activities of the country. Microfinance helped non-economic purposes such as giving dowry, spending for weddings, funerals, and many other purposes helped in the management […]<\/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-117006","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\/117006","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=117006"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/117006\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=117006"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=117006"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=117006"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}