Daijiworld Media Network - Bengaluru

Bengaluru, Feb 4: The Karnataka government is cracking down on microfinance institutions (MFIs) with a new law that imposes up to 10 years in jail for coercive loan recovery methods.

The revised Karnataka Microfinance (Anti-Exploitation) Ordinance 2025 has been sent to Governor Thawar Chand Gehlot for approval and includes severe penalties for violations. The maximum jail term has been increased from three years to ten. The law aims to protect vulnerable groups, especially farmers, women, and self-help groups, from exploitation by MFIs.

Key provisions include: anyone violating the ordinance could face 6 months to 10 years in prison and a fine of up to Rs 5 lakh. These crimes are non-bailable, and violators will be prosecuted by first-class judicial magistrates.

The law bans MFIs from using force or intimidation to collect loans. It also criminalises actions such as harassing borrowers or seizing their assets. Additionally, any attempt to illegally take documents related to government benefits from borrowers will be treated as a criminal offense.

The state will appoint an ombudsman to resolve disputes between lenders and borrowers, while police officers are required to file cases of violations. Unlicensed MFIs will have their loans annulled, and defaulters may face fines or jail time for failing to report their activities.