BENGALURU, Feb 4 (PTI) – In a strong move to protect borrowers from coercive recovery practices by microfinance institutions (MFIs), the Karnataka government has drafted a stringent ordinance that includes penalties of up to ₹5 lakh and a maximum jail term of 10 years for violators.
State Home Minister G Parameshwara confirmed on Tuesday that the Karnataka Micro Finance (Prevention of Coercive Actions) Ordinance 2025 has been sent to Governor Thaawarchand Gehlot for approval.
"It was initially set at three years, but we have now increased the imprisonment term. The fine has also been raised to ₹5 lakh to ensure the law serves as a strong deterrent," Parameshwara said, addressing reporters in Bengaluru.
The decision to issue the ordinance comes amid rising reports of borrower suicides and multiple complaints from across the state regarding aggressive and unethical loan recovery tactics employed by MFIs.
Parameshwara acknowledged that legal challenges from MFIs were anticipated, which led to careful scrutiny of the ordinance before its finalization. "After the first draft was prepared, discussions were held on the possibility of MFIs challenging it in court. The Chief Minister instructed the Law Department to ensure all necessary legal safeguards were incorporated. This caused a slight delay, but now a well-prepared draft is ready," he added.
The ordinance is expected to significantly curb exploitative lending practices and provide relief to vulnerable borrowers, especially those struggling under financial distress. Once the Governor grants assent, the new law will come into immediate effect.
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