Majority of Sri Lanka’s rural finance and lending institutions approved by the Department of Commerce under the Ministry of Industry and Commerce are facing a risk to their credit profiles and deposit base due to mismanagement and lack of proper supervision of the administration, recent government audit inspection discovered.
The situation is grave for depositors of those financial institutions controlled by the department as it is outside the purview of the Central Bank.
The Annual Accounts of approved lending institutions should have been furnished to the Director General of Commerce for the purpose of continuous supervision of eligibility of those institutions, but this was not done by relevant institutions Auditor Generals recent report exposed.
Even though the Director of Commerce has the responsibility for supervising the performance of the approved lending institutions, that function had not been performed, the report revealed.
The Director General of Commerce has the authority to declare lending institutions on the recommendation of the Committee by which credit societies are approved, under the Mortgage Ordinance, No.6 of 1949, Trust Receipt Ordinance, No.12 of 1947 and Inland Trust Receipt Act, No.14 of 1990.
The Department of Commerce has declared 375 lending institutions in terms of Section 114(1) of the Mortgage Ordinance, as approved lending institutions for the functions of the said Ordinance from September 1973 to April 2017.
Out of those institutions, 269 institutions are Co-operative Societies and Rural Banks and the 106 remaining institutions are finance companies and banking institutions.
In terms of the Section114(1) of the Mortgage Ordinance, the license which was obtained from the Central Bank of Sri Lanka should be furnished by the relevant institutions for obtaining the approval for finance companies and banking institutions.
However, the said license had not been obtained for 57 approved finance companies and banking institutions, government audit inspection detected.
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