Karnataka Home Minister G Parameshwara announced that the state government is set to resubmit the Karnataka Micro Finance (Prevention of Coercive Actions) Ordinance 2025 for the Governor’s assent, addressing concerns raised by Governor Thaawarchand Gehlot.
This ordinance aims to protect borrowers from harassment by microfinance institutions (MFIs) and was previously returned by the Governor due to issues related to regulatory excesses and substantial penalties, including potential 10-year imprisonment and fines of Rs 5 lakh. Parameshwara clarified that these penalties are meant to deter wrongful actions, stating, “The fine is imposed on those who commit wrong, not everyone,” underscoring the intention to create a protective framework for vulnerable borrowers.
Drafted in response to a troubling rise in suicides and complaints regarding predatory loan recovery methods, the ordinance incorporates penalties for illegal lending practices. However, the Governor has pointed out that the proposed penalties appear disproportionate when compared to the Karnataka Money Lenders Act, 1961, and the Indian Penal Code.
“The Governor has returned it with certain observations; the government will respond and resend it,” Parameshwara reiterated, acknowledging that differing viewpoints between the state government and the Governor are not uncommon.
The Governor also suggested that the matter should be resolved through legislative discussions, especially with the budget session approaching in March. “We wanted to implement a law promptly to address increasing reports of suicides and harassment,” Parameshwara added.
In defense of the ordinance, Law Minister HK Patil emphasized that it specifically targets illegal activities by MFIs. He reassured that legitimate loans and recovery efforts through registered entities would remain unaffected, stating, “The ordinance does not propose any action that would violate natural justice.” Patil further countered the suggestion that existing laws could adequately manage the situation, highlighting the lack of specific penalties for such offenses. “The ordinance has been finalized urgently in response to an ‘emergency’ where lives are at stake,” he remarked.
Deputy Chief Minister DK Shivakumar previously indicated that the Karnataka government is actively working on this ordinance to protect the poor from microfinance company exploitation.
The Karnataka government intends to present the ordinance as a bill for further debate in the upcoming legislative session.
