Karnataka Governor returns state’s microfinance ordinance over harsh penalties​on February 7, 2025 at 9:24 am

Karnataka Governor returns state’s microfinance ordinance over harsh penalties

​Karnataka Governor returns state’s microfinance ordinance over harsh penalties Karnataka Governor returns state’s microfinance ordinance over harsh penalties   

Karnataka Governor has sent back the state government’s ordinance aimed at cracking down on coercive microfinance loan recovery methods, citing concerns over the severity of punishments and its potential impact on the sector.

Karnataka Micro Finance (Prevention of Coercive Actions) Ordinance 2025, passed by the state cabinet, proposed a jail term of up to 10 years and a fine of up to Rs 5 lakh for executives of microfinance institutions (MFIs) found using intimidation tactics to recover loans. However, the Governor’s office raised objections, arguing that the punishment was excessive and noted that existing laws could have been used by the police to address the issue. It also warned that such measures could negatively impact the microfinance sector, which primarily serves low-income borrowers.

The decision comes just days after Karnataka Deputy Chief Minister DK Shivakumar announced the ordinance, vowing strict action against microfinance companies accused of harassment. Speaking from his Sadashivanagar residence, he said, “The government will empower the police to handle these situations more effectively. We won’t allow microfinance companies to take the law into their own hands.”

The government’s move followed a series of complaints and FIRs in districts like Belagavi, Bidar, Mysuru, and Ramanagara, where borrowers, mostly from low-income backgrounds, alleged intimidation by recovery agents. The administration had also set up helplines at district headquarters to assist victims.