Bengaluru: Karnataka Governor Thaawar Chand Gehlot has turned down the ordinance proposed by the Congress-led government to curb coercive recovery tactics by microfinance institutions (MFIs), citing concerns over its harsh penalties and potential industry impact.
The Karnataka Micro Finance (Prevention of Coercive Actions) Ordinance, 2025, proposed a 10-year jail term and a ₹5 lakh fine for violations, but the governor deemed these provisions “excessive.” He suggested enforcing existing laws instead. Law Minister HK Patil stated that the government would urge the governor to reconsider, while legal advisors hinted at revising the ordinance per his recommendations.
The government had introduced the ordinance following a surge in complaints and borrower suicides linked to aggressive loan recovery methods. Initially, the ordinance suggested a three-year jail term, later increased to 10 years to strengthen deterrence. Home Minister G Parameshwara defended the stringent measures, emphasizing that tougher penalties were necessary to prevent harassment-driven suicides.
Meanwhile, the Microfinance Industry Network (MFIN) published newspaper ads listing RBI-registered MFIs and providing grievance redressal contacts, including a toll-free helpline (1800-1021080). The MFIN assured borrowers that regulatory guidelines strictly prohibit intimidation and coercion in loan recovery.
With the ordinance under review, the state government faces the challenge of balancing borrower protection with maintaining the viability of the microfinance sector before the upcoming budget session.
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