Microfinance institutions warned against harassing loanees in the name of recovery

Karnataka Micro Loan and Small Loan Ordinance protects borrowers from coercive recovery methods, with strict penalties for violators.

To protect borrowers from excessive interest rates and coercive loan recovery methods, the State government has promulgated the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, 2025. Any individual engaging in coercive recovery measures violating the Ordinance shall face up to 10 years of imprisonment and a fine extending to ₹5 lakh, Deputy Commissioner B. Fauzia Tarannum has said.

The officers of the district administration on Wednesday held a meeting with representatives of microfinance institutions and directed them to follow the Ordinance in recovering loans and not to harass people.

Ms. Tarannum said that the Ordinance seeks to protect economically vulnerable groups, including self-help groups, farming communities and low-income households, from excessive interest rates and harassment by recovery agents of microfinance institutions in the name of loan recovery.

The officer directed that all microfinance institutions and moneylending agencies operating in the district must register within 30 days from the date of commencement of the Ordinance, i.e., by March 12.

The microfinance institutions should mention details, including their operating area, the rate of interest being charged, the system of recovery. Every microfinance institution must submit a quarterly report and annual statement to the Registering Authority, she added.

Police Commissioner Sharanappa S. Dhage said that stern action will be taken against microfinance institutions and all their employees if they harass borrowers for debt recovery by violating the Ordinance.

The microfinance institutions should provide a loan card to borrowers clearly mentioning loan details with the total amount paid and the pending balance, he said.