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Sri Lanka eyes more regulations for legal leasing after illegal money lending activity

ECONOMYNEXT – A committee that examined Sri Lanka’s regulated leasing industry and money lenders who use similar have recommended more regulations including price controls as well as closing of illegal operations.

The head of a three-wheeler driver association died in May 2020 after he was beaten by staff of an illegal money lending firm which was advancing money for vehicles in a similar manner to leasing.

Central Bank Governor W D Lakshman had appointed a committee after “recent developments in the finance leasing business,” to look into irregularities and illegal activities the central bank said.

“The Committee …has identified two set of activities in the business of finance leasing that require attention, namely, activities of the registered finance business and the activities of the illegal operators,” the central bank said.

Some borrowers go for leasing because formal bank loans are tightly regulated and requires collateral. Less credit worthy persons can get leases mostly due to the ease of recovery of the asset.

Some go to money lenders, usually at higher ates, because they have defaulted earlier or have other problems accessing both regulated banking and regulated legal leasing companies, analysts say.

When foreclosure is difficult, getting loans are also difficult and deposits face higher risks.

The committee has said most of the problems in the sector related to recovery of equipment and abuse of provisions in the Finance Leasing Act, No. 56 of 2000.

Proposals include the ceilings on penalty rates and closing illegal money lending institutions.

Another proposal was to actively “regulate the value paid by lessee for an equipment in a finance lease” and “regulation of valuation related to finance lease”.

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