Bengaluru: The government has implemented the Karnataka Micro (Micro) Loans and Small Loans (Prevention of Coercive Measures) Ordinance, 2025, from February 12 to control harassment and coercive recovery measures taken by microfinance institutions, lending agencies and moneylenders on borrowers who default on loans taken from microfinance institutions by middle and lower middle class people.
The highlights of the order are as follows:
- Microfinance institutions should not take any security from borrowers. The interest rates charged to customers should be transparently disclosed in writing. This order applies only to microfinance institutions that are not registered with the Reserve Bank of India, the Central and State governments.
- About 1.09 crore borrowers have received loans worth an estimated Rs 60,000 crore from registered institutions. Although the exact details of those who have borrowed from unregistered institutions are not available, it is estimated that they have borrowed an estimated Rs 40,000 crore.
- It is mandatory for microfinance institutions to register with the District Magistrates of the districts in which they operate. The interest rate charged by these institutions, details of borrowers and details of bad loans should be given to the District Magistrates.
- Quarterly and annual business details should be submitted to the District Magistrates. Failure to submit the information within the prescribed period will result in imprisonment for 6 months or a fine of up to Rs 10,000 or both.
- The government now has the power to appoint ombudsmen for dispute resolution through notification.
Chief Secretary speaks
Addressing the media recently, Shalini Rajneesh, Chief Secretary of Karnataka, said, “A person who undertakes forced collections will be subject to investigation, imprisonment for a term which may extend to ten years and a fine which may extend to Rs 5 lakh. These offences are cognizable and non-bailable. No police officer should refuse to register such cases. An officer not below the rank of Deputy Superintendent of Police (DYSP) may register a case suo motu”
She also added that the government shall have the power to issue directions from time to time for the implementation of this ordinance. This order aims to enhance financial discipline in microfinance institutions not registered by the RBI and the Central/State Governments and to provide relief to borrowers from harassment and coercive recovery measures.
