Law and Parliamentary Affairs Minister H.K. Patil tabled the Bill in the legislative Assembly, at Vidhana Soudha in Bengaluru, on March 6, 2025.
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In a bid to provide relief to the economically vulnerable groups, individuals, SHGs and small and marginal farmers, the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Bill, 2025, was tabled in the Legislative Assembly on March 6. The Bill proposes to wholly discharge borrowers from making repayment of loans, including rate of interest, taken from unlicensed and unregistered microfinance institutions (MFIs).
Law and Parliamentary Affairs Minister H.K. Patil tabled the Bill that mandates the release of securities taken by unregistered lenders. “It is justified because unlike banks, unregistered lenders operate without regulatory oversight and often acquire securities through coercion,” he said.
The Bill asks borrowers not to repay the loans, including amount of interest, taken from unlicenced leaders.
Wholly discharged
The Bill states, “Every loan, including the amount of interest, if any, payable by the borrower to the MFIs which are unlicenced and unregistered, shall be deemed to be wholly discharged. No civil court shall entertain any suit or proceeding against the borrower for the recovery of any amount of loan including interest.”
All suits and proceedings pending against borrowers for the recovery of loans would be closed. MFIs or money lending agencies or lenders should not seek security from borrowers by pawn, pledge or any other security for the loans, the Bill states.
The Bill envisages imposition of penalties, including imprisonment and fines. The punishment aligns with the doctrine of deterrence, as seen in the Prevention of the Money Laundering Act, 2002. The Bill proposed imprisonment of up to 10 years and fine of up to ₹5 lakh.
Only four components
The Bill said there should be only four components in the pricing of the loan, namely, the interest charge, the processing charge, the insurance premium and delayed penal payment.
All MFIs or lenders should provide the borrower a loan card reflecting the rate of interest charged; terms and conditions attached to the loan; information which adequately identifies the borrower; acknowledgements by MFIs of all repayments; and all entries in the loan card should be in Kannada. All MFIs should have a registered office in the local area.
No coercive action
The Bill proposed to ban use of coercive action by MFIs, which include exerting pressure, using violence, intimidating the borrower, frequenting the house, or other place where the borrower resides or works. It banned use of the service of private or outsourcing agencies for making repayments by borrowers.
The proposed legislation is a necessary and legally sound intervention to address financial exploitation, and does not violate any fundamental rights. It would provide protection for vulnerable borrowers. The principles of social justice, economic fairness, and the protection of life and dignity justify the need for immediate enforcement, the Bill states.
Mandatory registration
It made registration of MFIs with the government mandatory within 30 days from the date of commencement of this Act. Applications should be submitted to the Registration Authority of the district. The registration for operation is valid for a one-year period.
The Bill proposed appointment of ombudsperson, who can act as mediator between the borrower or lender, for settling disputes. The Bill seeks to replace an ordinance.
Published – March 06, 2025 05:23 pm IST
