A new era for microfinance and money lending in Sri Lanka

Understanding the Microfinance & Credit Regulatory Authority Act 2025

- By Imran Nafeer

SRI Lanka's microfinance and money lending sector is poised for a major transformation with the introduction of the Microfinance and Credit Regulatory Authority Act 2025. This landmark legislation replaces the Microfinance Act No. 6 of 2016, introducing a far more comprehensive and structured regulatory framework aimed at protecting borrowers, strengthening institutions, and enhancing transparency across the financial ecosystem.

Microfinance has long played a vital role in supporting low-income households, microentrepreneurs, and rural borrowers. Yet persistent regulatory gaps, concerns about unethical lending, and the limited effectiveness of the 2016 Act underscored the need for a stronger, more coherent framework.

Introduction

Efforts to introduce dedicated microfinance regulation in Sri Lanka date back nearly two decades, beginning with discussions between the Central Bank and the Ministry of Finance in 2006. Despite multiple drafts and consultations, these early attempts did not materialise into law, depriving the sector, and millions dependent on it, of a robust regulatory foundation.

Although the Microfinance Act No. 6 of 2016 represented an important milestone, it proved inadequate in addressing the sector's realities. The shortfall became evident when only four institutions were ever registered under the Act, revealing its limited practicality and inability to attract or regulate the broader microfinance industry. Against this backdrop, the proposed Microfinance and Credit Regulatory Authority Act represents long-awaited and much-needed reform.

The new Act is comprehensive, sector-aligned, and responsive to issues that have long challenged both MFIs and borrowers. This artide reviews the provisions of the Act and highlights key insights relevant to policymakers, lenders, and the public who seek to understand the benefits and broader implications of this reform.