Regulatory Alerts2016-10-27 | Direction No. 2 of 2016Central Bank of Sri Lanka Microfinance Act Directions No. 02 of 2016 on Statutory Reserve
The Central Bank of Sri Lanka issued Directions No. 02 of 2016 under the Microfinance Act to mandate Licensed Microfinance Companies to maintain a statutory reserve. These directions require companies to transfer at least 5% of annual net profits to the reserve until it reaches 50% of stated capital, followed by a further 2.5% transfer until the reserve equals the full stated capital. The directive defines stated capital according to the Companies Act and establishes the legal framework for capital adequacy within the microfinance sector.
# MONETARY BOARD
## CENTRAL BANK OF SRI LANKA
**27 October, 2016**
**MICROFINANCE ACT DIRECTIONS**
**NO. 02 OF 2016**
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## STATUTORY RESERVE
Issued under Section 11 of the Microfinance Act, No. 6 of 2016.
### 1. Statutory Reserve
**1.1.** Every Licensed Microfinance Company (LMFC) shall maintain a statutory reserve and shall, out of the net profits after the payment of tax of each year, before any dividend is declared, transfer to such reserve fund—
a) a sum equivalent to not less than Five percent (5%) of such profits until the amount of the said statutory reserve is equal to fifty percent (50%) of the stated capital of such LMFC; and
b) a further sum equivalent to not less than Two point Five percent (2.5%) of such profits until the amount of the said statutory reserve is equal to the stated capital of such LMFC.
### 2. Interpretation
**2.1.** Stated capital in relation to a company means the total of all amounts received by the company or due and payable to the company —
a) in respect of the issue of shares; and
b) in respect of calls on shares,
as contained in the definition in the Section 58 of the Companies Act, No. 07 of 2007.
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*Indrajit Coomaraswamy*
Chairman of the Monetary Board
Governor of the Central Bank of Sri Lanka
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