Patna, February 26 The Bihar Assembly passed a bill on Thursday aimed at strengthening oversight of microfinance institutions and curbing coercive recovery practices.
The Bihar Micro Finance Institutions (Regulation of Money Lending and Prevention of Coercive Actions) Bill, 2026, mandates that lenders must obtain prior permission from the state Finance Department before disbursing loans. Even if licensed by the RBI, microfinance companies will be required to register at the state level.
Operating in the state without registration will constitute a criminal offense under the proposed law.
Under the proposed law, special courts will be set up in every district to hear cases involving individuals allegedly driven to suicide due to predatory lending. These courts will be presided over by a first-class judicial magistrate.
The Director of Institutional Finance has been designated as the nodal officer under the proposed law. Microfinance firms must register with the director after securing an RBI license, and the registration process will be completed within 90 days, following verification of documents.
Responding to the discussion on the bill, Finance Minister Bijendra Prasad Yadav said that the legislation seeks to regulate microfinance institutions and small loan providers while curbing unethical recovery practices.
It would ensure transparent lending operations and reasonable interest rates, he added.
According to data from the self-regulatory organization Sa-Dhan, Bihar has the highest number of microfinance loan accounts in the country at over 22 million. Borrowers in the state owe a total of Rs 57,712 crore to microfinance companies.
The districts of East Champaran, Muzaffarpur, and Samastipur are among the most affected by microfinance-related indebtedness, the data showed.