Sri Lanka Moves to Regulate Microfinance amid Rising Distress

Sri Lanka is on the verge of transforming its microfinance and money lending sector with the Microfinance and Credit Regulatory Authority Act 2025, set to replace the outdated 2016 law and introduce comprehensive oversight of lenders. The legislation establishes a new authority to license and supervise both formal and informal credit providers, aiming to curb exploitative practices, enhance transparency, and protect borrowers.

The current microfinance landscape remains highly fragmented, with only a handful of institutions regulated under the old framework despite a much broader unregulated sector. Recent parliamentary efforts to collect data on borrowers unable to repay loans reflect growing concern over debt distress in poorer districts.

Policymakers hope the new law will strengthen consumer protection, standardise lending practices, and improve financial inclusion for low-income households. However, activists warn that additional safeguards and socioeconomic support will be necessary to prevent further hardship.

 

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