Citing lack of balance, Gehlot returns micro loan ordinance
Raj Bhavan maintained that while shielding borrowers from exploitative practices is the state’s duty, it is equally important to uphold the rights of lenders who have issued loans in accordance with the law.
Karnataka Governor Thaawarchand Gehlot has sent back the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, 2025, to the state government, expressing concerns that while it aims to protect the borrowers, it lacks provisions safeguarding the lenders.
Confirming the development, the chief minister’s office (CMO) stated that the governor found the prescribed punishment — 10 years of imprisonment and a ₹5 lakh fine — “excessive.” The government indicated that Gehlot recommended a detailed legislative debate on the ordinance rather than rushing its enactment. Given that the budget session is scheduled for March, he advised that the matter be addressed during the session for a more comprehensive discussion.
While the returning the ordinance, the governor said that any legislation should strike a balance between protecting vulnerable borrowers and ensuring the rights of legitimate lenders. While acknowledging that preventing harassment by microfinance institutions (MFIs) is crucial, he stressed that lawful lenders must also be safeguarded from potential financial distress caused by abrupt loan waivers.
Governor Gehlot expressed concerns about the potential fallout for lenders. “If all outstanding loans, along with interest, are nullified, genuine lenders could face severe difficulties. Additionally, they will have no legal recourse to recover their dues, potentially leading to prolonged legal battles,” he added.
The proposed ordinance was introduced following multiple reports of borrowers taking their own lives due to alleged harassment from microfinance companies over loan repayments. The state government sought to curb such coercion by tightening regulations on MFIs, particularly those operating outside the Reserve Bank of India’s (RBI) regulatory framework.
Raj Bhavan maintained that while shielding borrowers from exploitative practices is the state’s duty, it is equally important to uphold the rights of lenders who have issued loans in accordance with the law.
Defending the ordinance’s stringent provisions, the CMO asserted, “The fine amount has been raised to ₹5 lakh to ensure that offenders feel the full force of the law. A mere symbolic law will not be effective, and increasing both the imprisonment term and fine is necessary to create a strong deterrent against harassment and its tragic consequences.”
Home minister G Parameshwara defended the government’s approach, stating that the delay in issuing the ordinance was to prevent MFIs from challenging it in court. “We took time to ensure that microfinance companies do not exploit legal loopholes to challenge the law, which could weaken its impact. The draft was prepared meticulously, and the chief minister instructed the law department to take all necessary precautions,” he said.
Elaborating on the increased penalties, Parameshwara revealed that the initial draft had proposed a three-year imprisonment term, which was later raised to 10 years. “Originally, it was three years. We increased it along with the fine amount to ₹5 lakh so that violators truly feel the heat of the law. A weak law won’t prevent such incidents, so these stringent measures serve as a deterrent,” he said.
Amid growing concerns over borrowers’ suicides and loan-related distress, the Microfinance Industry Network (MFIN) launched a public awareness campaign. Advertisements published in major newspapers listed registered MFIs regulated by the RBI, urging borrowers to approach them for grievance redressal.
MFIN also released guidelines outlining ethical lending practices, emphasising that MFIs are prohibited from using force, threats, or abusive methods to recover loans. Borrowers facing difficulties were encouraged to contact the MFIN toll-free helpline (1800 102 1080) for assistance.