Micro Financing in Sri Lanka: An acute problem in a highly gendered sector

Rural Women in poverty as an ‘easy prey’, Manpower agencies associated with Micro Finance companies, Members of the security establishments connected with micro-financing companies, and GOSL has not taken any effective and timely action to date

With the end of the mission of his country visit in Sri Lanka from 26th of November to 3rd of December, the Special Rapporteur on contemporary forms of slavery stressed the need to regulate the microfinance sector in Sri Lanka. 

Concluding the visit which was upon an invitation by the GOSL, Mr. Tomoyo Obocata yesterday (3) presented the preliminary findings which aimed to assess the labor conditions in various economic sectors including the garment sector, tea plantations, domestic work, and the Micro Finance sector. 

”It is clear that contemporary forms of slavery still exist in this country and they particularly affect those in vulnerable situations”, said Mr. Tomoyo Obocata. The Special Rapporteur said microfinance schemes that disproportionally target women living in poverty in rural areas and often lead to high levels of indebtedness are a major concern.

The Special Rapporteur on Contemporary Forms of Slavery identifies the system of micro-financing as ”an acute problem” affecting in particular women from rural areas, many single-headed households. He further identifies microfinancing as a ‘highly gendered’ sector. 

”Many of them lack income-generating opportunities and decide to rely on loans to support their family and/or businesses as they are not able to obtain a loan from registered banks,” he observed.

Rural Women in poverty as an ‘easy prey’ with over 200 suicides

Predatory microfinance institutions and their unethical/ illegal practices were highly concerned by the Special Rapporteur. He observed that interest rates are very high, 20 -30% per week or even higher depending on the companies.

”I was also informed by several interlocutors that contracts by various companies are written in languages which women do not understand (e.g. English), so they sign them without the full understanding of implications and consequences”, added the Special Rapporteur.  

”Due to the high-interest rates of the loans, many women fall into debt bondage. This has led to suicides of reportedly over 200 women in the past years.”

The Special Rapporteur revealed that he was informed by a number of interlocutors that many desperate women resort to sex work or other demanding work like domestic work, which are rife with exploitation and abuse, in order to repay their debts and asking for sexual favors in return for relaxing repayment was observed as clear exploitation of victim’s vulnerability.

Manpower agencies associated with Micro Finance companies

The Special Rapporteur’s attention was drawn to the accomplices of Micro Finance companies such as manpower recruitment agencies.

”So-called manpower recruitment agencies are often connected to micro-financing companies, and they sometimes bring indebted women to work in the Free Trade Zone and elsewhere,” he noted. 

Furthermore, he mentioned that it appears that many micro-financing companies are connected to sub-recruitment agents who facilitate migration for employment abroad, including countries in the Middle East. These agents offer them incentive payments which are used to repay the loans, under the condition that the women concerned migrate abroad to work.

Members of the security establishments connected with micro-financing companies 

Hindering women’s access to justice and remedies, members of the security establishment may be connected with micro-financing companies and therefore complaints filed to the police do not proceed, observed the Special UN Rapporteur on Contemporary Forms of Slavery. Other entities such as the National Human Rights Commission are not sufficiently proactive in investigating the human rights abuses related to the operations of the microfinance companies, he noted.  

GOSL has not taken any effective and timely action to date!

”I am deeply concerned by the fact that the government has to date not taken any effective and timely action in regulating and monitoring these exploitative micro-financing companies, with the result that they continue to operate unabatedly’‘ he added.

He further revealed that the government has informed him that a legislative amendment is being introduced to put a system in place to regulate micro-financing companies. He urges to implement such measures without further delays. 

Based on detailed information gathered during the visit, his final report will be presented to the United Nations Human Rights Council in September 2022.

However, Nelumyaya Foundation (NyF) observes that proposed new laws or amendments have been in the pipeline for more than 3 years but not have been making any positive impact towards destitute consumers’ protections and rights or regulating the sector other than further promoting state-sponsored lending systems such as ‘Samurdhi’. It is reported that there are clear indications of a number of high positions of the GOSL are closely working with microfinance institutions governed by Lanka Microfinance Practitioners’ Association (LMFPA).

Following a similar visit in 2018, UN Human Rights Council’s Independent Expert on the Effects of Foreign Debt, Juan Pablo Bohoslavsky issued a report on the Effects of Foreign Debt and Other Related International Financial Obligations of States on the Full Enjoyment of All Human Rights in 2019. However, it is hardly noticed that the GOSL concerns on any of obligations arise from such reports internally.     

Radika Gunaratne 
Director Programmes – Nelumyaya Foundation

Thank you

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