-By Financial Correspondent
(Lanka-e-News -24.Jan.2025, 9.30 PM) Sri Lanka’s financial system is under siege from an insidious and unchecked phenomenon: illegal money lending. If you visit any town or village in the country, you will undoubtedly encounter countless unregistered moneylenders operating outside the bounds of the law. From individuals to informal organizations, these lenders have infiltrated every level of society, creating a sprawling underground economy that thrives on exploitation, secrecy, and impunity.
Even more alarming is the involvement of high-profile figures in this illegal enterprise. Reports suggest that over 320 politicians, including a former Justice Minister and ex-President, retired military commanders, and senior police officials, are actively engaged in this shadowy business. The practice has mushroomed into a massive parallel financial system, with an estimated worth of over 100 billion rupees. The scale of the issue is staggering, and its implications for Sri Lanka’s economy, social fabric, and rule of law are dire.
This article delves into the illegal money lending crisis, its connection to black money, and the urgent need for legal and institutional reforms to curb its devastating impact on Sri Lanka’s economy and its people.
At the heart of this issue lies the predatory and exploitative nature of these moneylenders. Their modus operandi typically involves:
1. Exorbitant Interest Rates: Borrowers are charged interest rates as high as 15% per month, amounting to an annual interest rate of 180%. For vulnerable individuals who cannot access formal banking systems, these rates are crippling.
2. Pawn and Collateral Schemes: Moneylenders often demand jewelry, properties, or other valuable assets as collateral. If borrowers default, the assets are seized, often under questionable circumstances.
3. Black Money as Capital: Much of the capital fueling this underground economy is believed to come from illicit sources, including drug money, bribery, corruption, and unreported income.
4. Exploitation of Legal Loopholes: Many lenders operate with the support of “friendly” lawyers and officials, who shield them from prosecution. Some even utilize connections with law enforcement and political figures to perpetuate their activities without consequence.
The proliferation of illegal money lending has far-reaching consequences that extend beyond individual borrowers:
1. Deepening Poverty: By targeting the most financially vulnerable, illegal moneylenders trap borrowers in cycles of debt. Many are forced to sell their assets, plunging further into poverty.
2. Artificial Inflation: The high interest rates and rampant lending create artificial demand in the financial system, leading to inflation and scarcity of capital for legitimate borrowers.
3. Undermining the Formal Economy: This parallel economy undermines Sri Lanka’s formal financial institutions, diverting funds away from banks and regulated lenders.
4. Black Money Laundering: Illegal lending serves as a conduit for laundering black money. Funds from corruption, drugs, and other criminal activities are injected into the system under the guise of loans, making it nearly impossible to trace their origins.
5. Economic Instability: According to an IMF report, illegal lending contributes significantly to Sri Lanka’s black economy, posing a threat to sustainable economic growth and financial sector stability.
Despite its scale, illegal money lending remains largely invisible to authorities—or perhaps intentionally ignored. This is partly because:
1. Powerful Connections: Many illegal lenders are shielded by their connections to influential individuals, including politicians, law enforcement officials, and even judiciary members.
2. Lack of Oversight: Sri Lanka lacks robust mechanisms to monitor unregistered financial activities, allowing these enterprises to operate unchecked.
3. Intimidation and Bribery: Victims often refrain from reporting abuses due to fear of retaliation or lack of faith in the system. Meanwhile, lenders use their financial power to bribe officials and suppress investigations.
4. Public Desperation: With limited access to formal credit, many Sri Lankans feel they have no choice but to turn to these lenders, perpetuating the cycle of exploitation.
The unchecked growth of illegal money lending poses an existential threat to Sri Lanka’s economy and governance. Here’s why urgent action is needed:
1. Protecting Vulnerable Populations: The poorest citizens are the primary victims of predatory lending practices. Laws must be enforced to shield them from exploitation.
2. Restoring Economic Stability: Illegal lending distorts the financial system, creating imbalances that hinder sustainable growth. Addressing this issue is critical for economic recovery.
3. Curbing Black Money: The eradication of illegal lending will disrupt a major channel for laundering illicit funds, bolstering efforts to combat corruption and organized crime.
4. Strengthening the Rule of Law: Allowing illegal lending to persist undermines public confidence in Sri Lanka’s legal and regulatory systems. Strict enforcement is necessary to restore trust.
The responsibility to address this issue lies squarely with the government. However, existing laws and enforcement mechanisms are insufficient to tackle the problem. Key reforms and actions include:
1. Mandatory Registration of Lenders: All moneylenders must be required to register with a regulatory authority. Unregistered lending operations should be criminalized, with strict penalties for violations.
2. Capping Interest Rates: Enforcing an interest rate ceiling will prevent exploitation and bring lending practices in line with formal financial institutions.
3. Strengthening Financial Oversight: Regulatory bodies, such as the Central Bank of Sri Lanka, must be empowered to monitor and investigate lending activities.
4. Cracking Down on Black Money: A concerted effort is needed to trace the origins of funds used in illegal lending, targeting corruption, bribery, and other illicit sources.
5. Public Awareness Campaigns: Educating citizens about their rights and the dangers of illegal lending will empower them to seek help and avoid exploitation.
6. Whistleblower Protection: Establishing anonymous reporting mechanisms and protecting whistleblowers will encourage individuals to come forward with information about illegal lending activities.
7. Political Will: Addressing this issue requires unwavering commitment from the government, including rooting out corruption and conflicts of interest among its own ranks.
The newly elected National People’s Power (NPP) government has the opportunity to take decisive action against illegal money lending. By prioritizing financial sector reforms and cracking down on black money, the NPP can demonstrate its commitment to justice, transparency, and economic stability.
This must include a zero-tolerance policy for corruption, even within its own ranks. Without genuine political will, efforts to address illegal lending will remain superficial and ineffective.
Illegal money lending has become a cancer in Sri Lanka’s financial and social systems. What began as an unregulated practice has now morphed into a vast underground economy, fueled by corruption, black money, and exploitation.
The victims of this system are Sri Lanka’s most vulnerable citizens—those who cannot access formal credit and are forced into the clutches of predatory lenders. Meanwhile, the perpetrators—politicians, officials, and other influential figures—profit at the expense of the nation’s economic stability.
This shadow economy must be dismantled. The government, regulatory authorities, and citizens must work together to enforce laws, promote transparency, and protect vulnerable populations. The time to act is now—before this illegal enterprise further erodes Sri Lanka’s economy and democracy.
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by (2025-01-24 16:30:39)
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