Colombo (AsiaNews) – Due to delays in implementing certain regulations, the growing rural debt crisis in Sri Lanka is taking a predatory turn, with illegal smartphone lending apps continuing to operate aggressively across the island.
Most scammers use promotions and social media adverts to attract customers, targeting those living in remote villages. This is still possible because a ministerial order – which is due to be published in the Official Gazette and is necessary to activate the enforcement mechanisms of the Microfinance and Credit Regulatory Authority Act – has not yet been issued; consequently, the newly established regulatory body lacks any effective authority.
Illegal smartphone apps primarily target rural areas and the most vulnerable people with hidden fees, high interest rates and short repayment terms. Online lenders routinely collect sensitive personal information from mobile phone contact lists to put pressure on, or even insult and embarrass, borrowers who fail to meet their repayment obligations.
Precisely to tackle this problem, on 4 March Parliament enacted the Microcredit Regulatory Authority Act, which, however, remains paralysed. Lawyers Seetha Amarasinghe and Ruchira Almeida told AsiaNews that “this legislative deadlock was brought to light during oversight discussions led by members of the Parliamentary Sectoral Oversight Committee on Economic Development, together with grassroots advocacy groups such as the ‘Yukthi Collective’ – a well-known grassroots consumer protection group based in Colombo – and the Centre for Equality and Justice (CEJ). These committees have called for swift administrative action. According to a representative from the Yukthi Collective, an alarming escalation of financial problems is taking place, in which the smartphone has been turned into a weapon against the poor”.
“Unlike traditional microfinance institutions (MFIs), virtual lenders require no physical infrastructure as they operate exclusively through mobile app ecosystems. They lure economically desperate borrowers with the promise of immediate cash. The apps promise low and manageable repayment terms, but their approach changes rapidly once downloaded, imposing hidden renewals and exorbitant handling fees, including annual percentage rates (APRs) that often exceed several hundred percentage points.”
According to senior officials at the Central Bank of Sri Lanka (CBSL), “the CBSL took decisive action on 5 August 2026, expanding its official blacklist to ban 26 major illegal financial networks and applications (including ‘TM App’, variants of MTFE and OnmaxDT). However, developers easily circumvent these bans by renaming or cloning their apps overnight. These apps target micro-entrepreneurs, daily wage earners and rural women who lack access to formal commercial banking services. Under the new law, penalties include fines of up to 5 million rupees and five years’ imprisonment. However, they cannot come into force until the Minister publishes the order in the Official Gazette. In this transitional gap, the CBSL is the sole active regulator, relying on old banking statutes to blacklist entities, rather than utilising the specialised and rigorous consumer protection mechanisms of the new Act.”
The Association of Lending Development Services (ALDS) maintains that “as these online lending operations are illegal and unregistered, borrowers are under no obligation to repay unlawful claims”. According to reports from some victims of the scam – Sumanawathie Appuhamy, Wijepala Ratnayaka and D.M. Jayasinghe from Nochchiyagama in Anuradhapura (North-Western Province) – “despite several complaints to the CBSL, there has been no response”.
