Bihar Tightens Grip on Microfinance Institutions with New Bill

The Bihar assembly has passed a bill to regulate microfinance institutions, mandating state-level registration for lenders and establishing special courts to handle cases of coercive lending practices. This move aims to ensure transparent operations and protect borrowers from unethical practices prevalent in the state.

In a significant legislative move, the Bihar assembly on Thursday passed a bill aimed at increasing oversight of microfinance institutions and curbing coercive recovery practices. The Bihar Micro Finance Institutions Bill, 2026, mandates lenders to seek prior permission from the state Finance Department before loan disbursement.

The bill makes it compulsory for microfinance firms, even those licensed by the RBI, to obtain state registration. Operating without registration will constitute a criminal offence. The proposed legislation will establish special courts for cases involving coercive lending practices, with a first-class judicial magistrate presiding over these matters.

Finance Minister Bijendra Prasad Yadav emphasized that the bill seeks to regulate microfinance and small loan providers and end unethical recovery methods. According to Sa-Dhan, Bihar leads the country in microfinance loan accounts, highlighting the urgency of the bill to address the state's financial issues.

(With inputs from agencies.)