Bengaluru: Karnataka governor Thaawar Chand Gehlot has rejected the ordinance sent in by the Congress government to curb harassment of borrowers by microfinance institutions (MFIs), citing concerns over the severity of punishment and potential impact on the microfinance sector.
The Karnataka Micro Finance (Prevention of Coercive Actions) Ordinance, 2025, sought to impose strict penalties, including a 10-year jail term and a fine of Rs 5 lakh, for violations. However, the governor deemed these provisions “excessive” and suggested that existing laws could be enforced by police to address the issue.
While law and parliamentary affairs minister HK Patil said they would “re-request” the governor to approve the ordinance as it has been drafted keeping the interest of borrowers in mind, a senior law officer hinted at reworking the ordinance accommodating the changes suggested by the governor.
With the ordinance back to the drawing board, the state govt faces the challenge of balancing borrower protection and the viability of microfinance industry. Law department officials said this should happen within next one week and before the budget session starting in early March.
According to the Chief Minister’s Office (CMO), the governor raised concerns that the ordinance could negatively impact microfinance, which plays a crucial role in providing credit to the poor.
The state govt had drafted the ordinance in response to rising complaints and a spate of suicides linked to coercive-recovery tactics by microfinance firms. Initially, the proposed jail term was three years, but it was later increased to 10 years to make it stringent.
“The delay in issuing the ordinance was to ensure microfinance companies do not get an opportunity to challenge the law in court, which could result in a setback for the govt. We discussed the matter in detail, and the CM directed the law department to take all necessary precautions,” home minister G Parameshwara said, defending the increase in punishment.
“The fine amount has been increased to Rs 5 lakh so that offenders feel the full force of the law. We cannot enact a law just for the sake of it; to have a real impact, both imprisonment provisions and the fine amount have been increased. The objective is to create a strong deterrent to prevent incidents of suicide and harassment,” he said.
Minister HK Patil said that as per the ordinance, unregistered, unlicensed moneylenders cannot give loans. Only loans given as per laws can be recovered. “We’ve framed rules to punish microfinances that recover loans by illegal means. Punishment is increased from 3 years to 10 years, and the penalty is enhanced to Rs 5 lakh to bring in a sense of fear,” he said, adding the governor has “some misunderstandings” about the ordinance.
Amid this debate, the Microfinance Industry Network (MFIN) issued newspaper advertisements listing RBI-registered MFIs, urging borrowers to reach out for grievances redressal. The MFIN also highlighted the official guidelines prohibiting forceful recovery tactics, threats, and harassment of customers or their relatives.
The MFIN advised borrowers to contact their lender in case of disputes and, if unresolved, escalate the matter through the MFIN’s toll-free helpline (1800-1021080). “People should not panic over news related to microfinance companies. There are clear regulatory frameworks in place,” the MFIN stated.