Bengaluru, Feb 7 (IANS): Karnataka Governor Thaawarchand Gehlot has rejected the ordinance promulgated by the Congress-led government to tackle the Microfinancing Institutions' (MFIs) menace.

Confirming the development, the Chief Minister's Office (CMO) said that the governor rejected the ordinance, stating that the punishment of 10 years and a fine of Rs 5 lakhs is "excessive."

The Governor also said that the Police could have used existing laws to control the situation.

This ordinance is likely to negatively impact microfinance, which in turn, will affect the poor, the Governor opined.

Notably, the Congress-led Karnataka government on Wednesday said that it is ready to incorporate suggestions made by the Governor in connection with the Ordinance promulgated by the state government to tackle the MFIs in the state resulting in suicides and desertion of people in rural areas.

It said, "The fine amount has been increased to Rs 5 lakh so that offenders feel the full force of the law. We cannot enact a law just for the sake of it; to have a real impact, both the imprisonment provisions and the fine amount have been increased. The objective is to create a strong deterrent to prevent incidents of suicide and harassment."

Karnataka Home Minister G Parameshwara said: "The delay in issuing the Ordinance was to ensure that microfinance companies do not get an opportunity to challenge the law in court, which could result in a setback for the government. We discussed the matter in detail, and the Chief Minister directed the Law Department to take all necessary precautions.

"The draft has been prepared carefully, taking all factors into account. We believe the government will not face any setbacks. The draft has been finalised accordingly," he said.

Meanwhile, considering the debate surrounding harassment leading to disastrous consequences in the state, the Microfinance Industry Network (MFIN) issued advertisements prominently in newspapers publishing the names of the registered MFIs regulated by the Reserve Bank of India (RBI).

The MFIN has appealed to those who availed loans to consult the MFI for any grievance and if they do not find a solution, they can call the MFIN toll-free number (1800 102 1080). The MFIN has also appealed to the people not to panic over the news related to microfinance companies.

The MFIN has also published the guidelines and framework under which MFIs operate as per the RBI guidelines including not adopting any forceful measures, threatening, abusive methods, or harassment of relatives of customers.

A series of incidents of suicides and desertion of homes are being reported from across the state, following which the state government promulgated an Ordinance to regulate the MFIs, which are not regulated by the RBI and operate without licenses.