Regulatory Alerts2018-12-03 | Direction No. 10 of 2018Maximum Rate of Interest on Microfinance Loans
The Monetary Board of the Central Bank of Sri Lanka issued Direction No. 10 of 2018 to protect customers from exorbitant interest rates charged by Licensed Finance Companies. This directive mandates that the effective annual interest rate on microfinance loans, inclusive of all charges, must not exceed 35 percent. Licensed Finance Companies are required to report these loans under specific FinNet codes and adhere to the defined scope for micro-enterprises.
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MONETARY BOARD CENTRAL BANK OF SRI LANKA
03 December 2018 | FINANCE BUSINESS ACT DIRECTIONS | No. 10 of 2018
MAXIMUM RATE OF INTEREST ON MICROFINANCE LOANS
In terms of the powers conferred by Section 12(1)(b) of the Finance Business Act, No. 42 of 2011, the Monetary Board issues Directions on maximum rate of interest on Microfinance loans for Licensed Finance Companies (LFCs).
| 1. Applicability and scope | 1.1. | The Central Bank of Sri Lanka introduces a maximum rate of interest on Microfinance loans with the objective of protecting the customers being charged with exorbitant interest rates on Microfinance loans granted by LFCs. |
| 1.2. | This Direction will be applicable for all Microfinance loans granted from the date of this Direction. | |
| 2. Maximum Rate of Interest | 2.1. | LFCs shall not charge a rate exceeding 35 percent per annum (effective annual interest rate), inclusive of all other charges on Microfinance loans. |
| 3. Definition of Microfinance Loans | 3.1. | Loans granted for individuals/individuals under Group Lending System for income generating activities, which include loans for establishing and managing Micro Enterprises. |
| 4. Reporting Requirements | 4.1. | LFCs shall report the Microfinance loans under code 1.1.4.12.0.0- Microfinance Loans in the Financial Information Network (FinNet) return NBD-MF-01-BS - Balance Sheet. |
| 5. Interpretations | 5.1. | “Micro Enterprises” shall mean enterprises in the manufacturing and service sector with an annual turnover of less than Rs. 15 million and employees less than 10 [Source: National Policy Framework for Small Medium Enterprise Development issued by Ministry of Industry and Commerce]. |
(Signature)
Dr. Indrajit Coomaraswamy Chairman of the Monetary Board and Governor of the Central Bank of Sri Lanka