Sri Lanka considers more regulations for legal leasing after illegal money lending activity

ECONOMYNEXT – A committee that examined Sri Lanka’s regulated leasing industry and money lenders who use similar rules have recommended more regulations, including price controls as well as shutting down illegal operations.

The head of a three-wheeler drivers association died in May 2020 after being beaten by the staff of an illegal money lending company who advanced money for vehicles in the same way as leasing .

Central bank governor WD Lakshman appointed a committee after “recent developments in the leasing industry” to examine irregularities and illegal activity, the central bank said.

“The Committee… identified two sets of activities in the leasing sector that require special attention, namely the activities of the registered financial sector and the activities of illegal operators,” the central bank said.

Some borrowers opt for leasing because formal bank loans are strictly regulated and require collateral. Less creditworthy people can get leases mainly because of the ease of asset recovery.

Some go to pawn shops, usually at higher rates because they defaulted earlier or have other problems accessing both regulated banks and regulated legal leasing companies, depending on the situation. analysts.

When foreclosure is difficult, obtaining loans is also difficult and deposits face higher risks.

The committee said that most of the problems in the sector were related to the recovery of equipment and the abuse of the provisions of Law No. 56 of 2000 on leasing.

The proposals include caps on penalty rates and the closure of illegal credit institutions.

Another proposal was to “actively regulate the value paid by the lessee for equipment in a finance lease” and “the valuation regulation related to the finance lease”.

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