Karnataka CM asks police, officials to crack down on illegal moneylenders
During a video conference with deputy commissioners and superintendents of police, Siddaramaiah emphasised the need for proactive measures to protect borrowers from harassment
Chief minister Siddaramaiah has directed district administrations and police authorities across the state to enforce the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, 2025, ensuring strict action against unauthorised moneylenders and microfinance institutions (MFIs) engaging in coercive recovery tactics.
During a video conference with deputy commissioners (DCs) and superintendents of police (SPs) on Saturday, Siddaramaiah emphasised the need for proactive measures to protect borrowers from harassment. Citing reports of lenders employing anti-social elements for loan recovery, the CM instructed officials to take immediate action against such practices.
“The DCs and SPs must evolve a mechanism to keep a regular check on microfinance institutions that are operating without authorisation from the Reserve Bank of India (RBI) and ensure that even those who have obtained RBI’s permission are operating within the central bank’s guidelines,” he said. The CM made it clear that district officials would be held accountable if reports of borrower harassment emerged from their jurisdictions.
The ordinance, which came into effect on February 12, prohibits coercive loan recovery practices and aims to regulate high-interest lending. The CM directed officials to establish round-the-clock call centres to receive complaints related to loan harassment. “The ordinance is not meant to harass any institution but to prevent illegal recovery tactics,” the official statement said.
Siddaramaiah also instructed authorities to shut down financial firms operating without valid registration and to maintain continuous vigilance over unlicenced microfinance institutions. “There should be continuous vigil against unlicenced microfinance companies. Also, it should be ensured that licenced firms are operating as per RBI guidelines. Criminal cases should be filed against those indulging in forceful recovery of loans,” he added.
The CM further directed police officers to take suo motu action in cases of borrower harassment. “It has come to my notice that after the new law is brought, such cases have drastically come down in many districts. By implementing the law effectively, such incidents must be completely stopped,” he said.
Karnataka Governor Thawaarchand Gehlot had initially returned the ordinance on February 7, raising concerns about its impact on legal loan recovery. He sought clarification on whether it could interfere with the rights of legitimate lenders and potentially violate constitutional protections under Articles 19 and 32. The ordinance was later approved after the government assured that only unlicenced and unregulated lenders charging excessive interest would be affected.
Under the ordinance, MFIs are prohibited from collecting security deposits from borrowers, a measure aimed at protecting vulnerable groups such as farmers, women and self-help groups. Additionally, all microfinance institutions must provide written disclosures on interest rates to borrowers.
The ordinance mandates that unregistered MFIs operating in Karnataka must register with district authorities and submit details on loan interest rates, borrower data, and outstanding loans. “Microfinance institutions must register with district collectors and furnish details regarding the interest rates they charge, borrower information, and outstanding loans (susthi loans),” it added.
Non-compliance will attract penalties, with the ordinance prescribing imprisonment of up to six months or a fine of ₹10,000, or both, for failing to provide required information. To curb coercive recovery practices, the law also introduces strict measures, including imprisonment of up to 10 years and a fine of up to ₹5 lakh for offenders. The offences under this law are categorised as cognisable and non-bailable, ensuring that police must register cases against violators.
The ordinance was introduced following several distressing incidents linked to coercive microfinance recovery methods. Among them was the case of a borrower from Raichuru district, who reportedly died by suicide due to harassment from an unregistered lender over loan repayment. His wife later staged a symbolic protest by sending her mangalsutra to home minister G Parameshwara, seeking justice for her deceased husband.
