In a landmark move, the Karnataka government has strengthened its stance against the coercive recovery tactics used by Microfinance Institutions (MFIs). The latest draft of the Karnataka Microfinance (Prevention of Coercive Actions) Ordinance, 2025 introduces stricter penalties, enhanced transparency, and greater borrower protection.
Key Highlights of the Ordinance
🔹 Stronger Punishments for Coercion
Jail time for MFI executives increased from 3 years to 10 years for unethical recovery practices.
A hefty fine of up to ₹10 lakh for violators.
🔹 Ban on Coercive Recovery Tactics
No violence, intimidation, or threats against borrowers or their families.
Private recovery agents and criminal agencies cannot be used for loan collection.
🔹 Mandatory Registration & Transparency
MFIs must register with local authorities within a month of the law’s enforcement.
Clear and transparent interest rates to prevent predatory lending.
🔹 A Response to Rising Suicides & Harassment
The move follows disturbing reports of borrower distress, particularly in rural Karnataka.
Authorities are determined to curb exploitative lending that has pushed many borrowers to the brink.
🔹 Legal Readiness for Challenges
Anticipating legal pushback from MFIs, the government has ensured the ordinance is legally robust to withstand court scrutiny.
🔹 Direct Government Intervention
Home Minister G. Parameshwara has emphasized the need for a strong deterrent against MFI harassment.
Union Minister H.D. Kumaraswamy has personally urged borrowers to report harassment, vowing strict action.
🌍 A Turning Point for Ethical Lending? 🌍
This bold step by Karnataka could set a precedent for other states grappling with similar issues. With the Governor’s assent awaited, all eyes are on whether this law will reshape India’s microfinance sector.
Do you think other states should follow Karnataka’s lead?