Step 1 — Know what you're payingපියවර 1 — ඔබ ගෙවන්නේ කුමක්දැයි දැනගන්නபடி 1 — நீங்கள் என்ன செலுத்துகிறீர்கள் என்று அறியுங்கள்
Sri Lanka's informal credit market runs on quoted rates that hide the actual cost of borrowing. Three common patterns:
- "10% a month" — sounds like 120% a year. Compounded monthly, it is closer to 214% APR. Compounded weekly for a polikaraya's daily-collection loan, it can exceed 300%.
- "24% per year, flat" — sounds like a bank rate. If interest is charged on the original principal for the whole term even as you pay principal down, the effective rate on level monthly instalments is closer to 44%.
- "Fee plus interest" — a "processing fee" of 5–10% deducted upfront (so LKR 100,000 lent gives you LKR 90,000 in hand) can add another 10–20 percentage points to the true rate.
Our workbook and online calculator both use the standard finance-industry internal rate of return (IRR) approach: solve for the interest rate that makes the sum of your discounted repayments equal to the amount you actually received. This is the same maths regulated banks are required to disclose.
What "in-hand" means"අතට ලැබෙන" යනු කුමක්ද"கையில்" என்றால் என்ன
The amount that actually reached you — after any fees, deductions, processing charges, or "advance interest" the lender withheld at the start. If a lender writes LKR 100,000 on the paper but hands you LKR 88,000, the loan principal for calculating the true rate is LKR 88,000.
Step 2 — Compare it fairlyපියවර 2 — එය සාධාරණව සසඳන්නபடி 2 — நியாயமாக ஒப்பிடுங்கள்
| Source | Typical effective annual rate | Regulator / basis |
|---|---|---|
| Commercial bank personal loan | ~14 – 18% | CBSL published rates |
| SANASA / cooperative bank | ~16 – 20% | Cooperative Federation |
| Regulated microfinance operator (post-MCRA) | ~22 – 28% | Microfinance & Credit Regulatory Authority Act 2025 |
| Licensed gold pawnbroker | ~22 – 30% | CBSL circulars |
| Piyavara fair-cost ceiling | ~cost of funds + 6 – 8pp | This framework |
| Polikaraya "10% a month" | ~200 – 260% | Unregulated |
| Daily-collection wheeler loan | ~250 – 400%+ | Unregulated |
The workbook gives you a one-line verdict based on where your rate falls:
- Below cooperative rate: "Reasonable — keep going."
- Cooperative to regulated microfinance range: "Comparable to regulated lenders — check if a cheaper option is available to you."
- Above regulated microfinance: "Higher than the regulated cap — negotiate or refinance."
- Above ~50%: "Predatory. Step 3 is a route out."
Step 3 — Take the next stepපියවර 3 — ඊළඟ පියවර ගන්නபடி 3 — அடுத்த படியை எடுங்கள்
Path A — Renegotiate
Take the true-rate number to the lender. Many informal lenders will accept an extension or a lower rate rather than default. Ask for the loan to be re-papered with a written schedule; ask for interest to accrue only on the outstanding balance.
Path B — Refinance
Most cooperative banks (SANASA), regulated microfinance operators (Berendina, LOLC Micro Credit), and the two state banks (Bank of Ceylon, People's Bank) offer debt-consolidation loans at 18–24%. Even if you can only refinance half your informal debt, cutting rate from 214% to 22% on that half typically saves more than the informal repayment demand.
Path C — Legal help
Under the Money Lending Ordinance of 1918 (still in force), a Sri Lankan District Court can reopen any loan where interest is "harsh and unconscionable" and rewrite the terms — including retrospectively. The Legal Aid Commission provides this help free of charge for people who cannot afford a lawyer. Bring your workbook printout as evidence.
Step 4 — Lend fairly, if you mustපියවර 4 — ඔබ ණය දෙනවා නම්, සාධාරණව දෙන්නபடி 4 — நீங்கள் கடன் கொடுத்தால், நியாயமாக
The Piyavara fair-lending formula:
Fair rate = your cost of funds + expected-loss provision + admin buffer
For a household lender:
- Cost of funds — the rate on the savings you'd otherwise earn (typically 8–12% in a Sri Lankan bank fixed deposit today).
- Loss provision — 2–5% for a well-known borrower; up to 10% for a first-time borrower.
- Admin buffer — 1–2%. You are a family lender, not a business.
Total: roughly 11 – 24%. Any household lender charging more than this is running a business — and should be regulated as one.
Step 5 — Build a fair seettuපියවර 5 — සාධාරණ සීට්ටුවක් සාදන්නபடி 5 — நியாயமான சீட்டு
A seettuwa (Sinhala) / சீட்டு (Tamil) / ROSCA (rotating savings and credit association) is a group of typically 10–20 members who each contribute a fixed amount every month. Each month the collected pot goes to one member — either by lot, by need, or by auction. The last member receives the last pot.
Why it works when it works:
- No interest at all in a fixed-order or lottery-order seettu. The "interest" is the discipline of forced monthly saving.
- Zero administrative cost. One member keeps the ledger, everyone can see it.
- Social enforcement. Members know each other; defaults are rare when the group is well-chosen.
Why it fails when it fails, and how to prevent it:
- The organiser runs away with the pot. Fix: rotate the organiser role monthly; keep the pot in a joint account requiring two signatures; publish the ledger to a group chat every month.
- Auction seettu rates run wild. Fix: cap the auction discount at 10% of the pot. In a Piyavara-standard seettu, the highest discount a member may bid to receive their pot early is 10%.
- A member defaults after receiving their pot. Fix: require a co-signer from within the group; hold the last two months' contributions in the joint account as a buffer.
The full seettu template (rules, ledger, agreement) is at Fair seettu →.
Where this comes fromමූලාශ්රஆதாரங்கள்
Piyavara draws on five centuries of community-finance practice, distilled through recent evidence on what works and what harms borrowers:
- Sri Lankan and South Asian ROSCAs — seettuwa (Sinhala), cheetu / சீட்டு (Tamil), chit funds (Kerala kuries formalised under the Chit Funds Act, 1982).
- European community lenders — Italian monti di pietà (from 1462), Jewish Hebrew Free Loan Societies (from the 12th century, formalised in the 1890s), German Raiffeisen cooperatives (from 1864).
- Islamic non-usurious finance — qard hasan (benevolent loans), murabaha (cost-plus sale), mudarabah and musharakah (profit sharing).
- Village Savings and Loan Associations (VSLAs) — Care International's model, now serving 15+ million members across Africa and Asia.
- Modern regulated microfinance — Grameen Bank (Bangladesh, 1976), Kiva (2005), Zidisha (2009). We take their mechanisms and none of their commercial pressure.
Read the full research report and citations at about → sources.