The government has taken initiative to write-off of nearly Rs.1400 Million in capital and interest costs of more than 45,000 women borrowers. 

"Thus, those loans, whose capital costs were less than Rs.100,000 and were outstanding for more than three months were selected to be written off," Finance and Media Minister Mangala Samaraweera said today, addressing an event in Jaffna. 

Samaraweera also said, "Whilst the drought was a major trigger factor, the unscrupulous practices of the lenders, particularly the unregulated loan sharks, played a major role in creating this debt trap. I am sad to note that even reputed companies in the financial services industry have been engaged in such practices.

The worst offenders target these vulnerable households charging them exorbitant interest rates, some as high as 200%, spiraling borrowers to an unending cycle of debt. Unethical practices such as charging excessive interest rates from consumers, and using unnecessary coercion techniques have brought about many people, especially women, severe economic hardships and psychological distress.

Lenders have in many cases given loans that they know the borrower simply cannot afford. In many cases, a single household would take multiple loans to pay off previous debts, rather than establish or improve existing businesses.

The government is well aware that this debt-write off is a short-term solution to a much larger problem. Furthermore, it is not feasible to have multiple debt write offs of this nature. To bring about a long-term solution, we are committed to introduce the necessary legislation and regulation to govern the microfinance industry.

As a first step, the government has passed regulation to cap interest rates at 35% per annum, which is still more than the market rates, and would be sufficient to cover the inherent risk premium and administrative costs."