Karnataka Protects Borrowers with New Legislation

The Karnataka Legislative Assembly passed a significant bill protecting borrowers from coercive methods used by microfinance institutions. Targeting predatory loan recovery practices, the bill enforces strict penalties including substantial fines and lengthy jail terms. Registration with local authorities is mandatory for lending institutions under the new law.

The Karnataka Legislative Assembly on Monday passed a crucial bill aimed at shielding borrowers from the aggressive recovery practices of microfinance institutions. The legislation prescribes hefty fines up to Rs five lakh and jail terms reaching ten years for violators.

Introduced by Law and Parliamentary Affairs Minister H K Patil, the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Bill, 2025, was unanimously approved. The bill replaces an earlier ordinance and is seen as a response to numerous suicides and complaints about exploitative recovery tactics in the state.

Under the new regulations, all money-lending entities must register with deputy commissioners. The bill bars coercive recovery tactics, and empowers authorities to intervene against such practices. A notable provision is the appointment of an ombudsman to mediate loan disputes and ensure compliance with the new regulations.

(With inputs from agencies.)