ECONOMYNEXT – Sri Lankan finance companies will write off loans of up to 100,000 rupees of women in drought-hit areas under a scheme where the Treasury will reimburse the capital component, the finance ministry announced.
The finance companies will have to absorb the interest component of the loans written off, a statement said.
The scheme will cover non-consumption micro-finance loans of up to 100,000 rupees of women in 12 districts where cultivations were affected consecutively for five seasons.
The districts are Trincomalee, Ampara, Batticaloa, Jaffna, Mullaitivu, Kilinochchi, Vavuniya, Mannar, Kurunegala, Puttalam, Anuradhapura and Polonnaruwa.
The government has allocated 500 million rupees this year to initiate the reimbursement program, the statement said.
The Cabinet of Ministers this week approved the scheme on the recommendation of the Minister of Finance and Mass Media Mangala Samaraweera.
The government has also decided to introduce an interest rate cap of 30 percent per annum on all future loans given by micro finance companies.
“This scheme of relief initially will be limited to women who have obtained micro finance loans for non-consumption purposes in the drought-affected districts,” the statement said.
Those who benefit from the debt relief program will be included on a priority basis to borrow afresh from an interest subsidy loan scheme launched under the Enterprise Sri Lanka programme with a maximum two year grace period, the statement said.
They will also be given priority under the government’s subsidized programs and other rural livelihood schemes implemented through co-operative societies as envisaged in the Budget 2018 proposals.
“Micro finance institutions are currently providing micro loans without collateral through a door-to-door strategy of high interest rate loans amounting to 40 percent to 220 percent per annum for women seeking economic activities and income generation sources,” the statement said.
“When multiple loans are obtained under micro finance schemes, people have to pay much higher interest than the initial loan amount due to higher interest premium.
“The government has taken timely action to protect rural women from falling into a debt trap by imposing an interest rate cap of 30 percent on future loans.”
(COLOMBO, July 24, 2018)