2 Feb, Sunday 2025 Karnataka: Karnataka’s draft law proposes that borrowers do not repay loans taken from unlicensed and unregistered microfinance institutions (MFIs). The draft ordinance states that “every loan including the amount of interest, if any, payable by the borrower to MFIs which are unlicensed and unregistered shall be deemed to be wholly discharged”.
In action providing relief to the economically vulnerable groups, individuals/ShGs, and small marginal farmers, who have been subject to coercive actions by unregistered MFIs, the Karnataka state government has proposed to promulgate an Ordinance in a couple of days stating that every loan, including interest, from such institutions shall be deemed wholly discharged.
The draft Ordinance has been drafted under the leadership of Law and Parliamentary Law and Parliamentary Affairs Minister H.K. Patil. The law is set to be vetted by Chief Minister Siddarmaiah before being sent to the Governor for assent
The draft Ordinance has been drafted under the leadership of Law and Parliamentary Affairs Minister H.K. Patil and is set to be vetted by Chief Minister Siddaramaiah before being sent to the Governor for assent.
The draft of the law includes penal provisions, such as six months to three years of imprisonment for officials of unregistered microfinance companies found guilty of harassing borrowers. The following spate of suicides by borrowers of loans from largely unregistered MFIs, the Karnataka government was under public pressure to enforce new laws to regulate undue hardship of usurious interest rates and coercive means of recovery by MFIs operating in the state.
The total gross loan portfolio of MFIs in Karnataka was ₹42,265 crore in 2023-24, with an average loan per client of ₹44,036. The proposed Ordinance also states that no civil court shall entertain any suit or proceeding against the borrower for the recovery of any amount of loan, including interest, and that all pending suits and proceedings against borrowers shall be closed.
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