Mysuru/Bengaluru: Chief Minister Siddaramaiah squarely blamed the Centre for citizens in the state turning to unauthorised microfinance firms and non-banking financial companies (NBFCs) for loans and being harassed by recovery agents for defaulting on payments.
Siddaramaiah said the Union govt’s decision to cut funds to the state has helped microfinance firms proliferate and attract borrowers since “people will go to agencies that extend them loans”.He also said he does not expect any major projects for the state in Saturday’s Union budget.
“The Centre cut National Bank for Agriculture and Rural Development (Nabard) funding by 58%, and despite our demands, it has not increased Karnataka’s share in devolution of taxes,” Siddaramaiah said. “We are still getting only Rs 60,000 crore, which is 13 paise for every Re 1 collected from the state. Besides this, the Centre has stopped funds to projects announced in the Union budget. For instance, it had announced Rs 5,300 crore for the Upper Bhadra project in the 2023-24 budget but did not release even a single rupee till date.”
Siddaramaiah said the responsibility of reining in erring microfinance firms lay with RBI and the Union govt, but that the state would crack the whip through an ordinance. “Microfinance companies adopt coercive methods to get back money lent to borrowers. They use goondas and rowdies to recover money. We will crack the whip.”
Following a surge in suicides and reports of people fleeing their homes to escape harassment from lenders, the govt had planned an ordinance to regulate the rapidly expanding microfinance sector. Much of Thursday’s cabinet discussion and a meeting with senior ministers which followed, focused on fine-tuning details of The Karnataka Micro Finance Institutions (Regulation of Money Lending) Bill, 2025.
But on Friday home minister G Parameshwara said some aspects still needed clarity and that the ordinance would be delayed by a few days. He said some of the provisions of the proposed ordinance conflicted with existing laws.
“The chief minister had instructed secretaries of law and parliamentary, home and finance departments to act swiftly to finalise the ordinance,” Parameshwara said. “We are wary since microfinance institutions might approach courts. We need to create a law that prevents them from doing so.”