The Karnataka government is revisiting the Karnataka Micro Finance (Prevention of Coercive Actions) Ordinance, 2025, after Governor Thaawarchand Gehlot returned it with concerns. The ordinance seeks to address illegal loan recovery practices by microfinance institutions (MFIs), proposing severe penalties including up to 10 years in prison and fines of up to ₹5 lakh for violations.
Governor Gehlot raised concerns regarding the severity of the penalties, questioning the rationale behind imposing a ₹5 lakh fine when the maximum permissible loan amount is ₹3 lakh. He also compared these proposed penalties to existing laws, noting they seem disproportionate.
Home Minister G Parameshwara confirmed the government is reviewing the Governor’s feedback. He emphasized that the fine is intended to deter misconduct, not penalize all institutions, and expressed the state’s commitment to preventing coercive recovery tactics, which have reportedly led to an increase in borrower suicides.
The Governor suggested that the issue be thoroughly discussed in the upcoming legislative budget session in March. However, Parameshwara defended the urgency of the ordinance, citing daily reports of harassment and suicides linked to microfinance loans.
Despite the Governor’s concerns, Law Minister HK Patil stressed the ordinance’s importance in targeting illegal recovery methods used by unregulated MFIs while leaving legitimate financial institutions unaffected. The opposition has criticized the state government for failing to address the needs of farmers and borrowers, pointing to over 3,000 suicides in the last 20 months.
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