Details of micro loan ordinance released

The Karnataka chief minister's office (CMO) on Thursday released the fine print of the Karnataka Micro Loan and Small Loan (Prohibition of Coercive Measures) Ordinance, 2025, which came into effect on February 12.

- HT Correspondent

BENGALURU: The ordinance seeks to "regulate the burden imposed on borrowers due to high-interest rates" and curb "coercive recovery practices" by microfinance institutions (MFIs) and unregulated money-lenders.

Karnataka Governor Thaawarchand Gehlot on Wednesday gave his approval to the ordinance, after receiving clarifications from the state government.

According to the ordinance, "microfinance institutions shall not collect any security from borrowers," a move aimed at preventing the exploitation of vulnerable groups such as women, farmers, and self-help groups. To ensure transparency, it further mandates that "microfinance institutions must provide a written disclosure of interest rates to customers."

The government has stated that the ordinance applies only to unregistered MFIs, while institutions registered with the Reserve Bank of India (RBI), central, or state government remain outside its purview. The government estimates that ₹60,000 crore has been disbursed to 10.9 million borrowers through registered MFIs, whereas unregulated lenders have provided approximately ₹40,000 crore in loans, though comprehensive records remain unavailable.

The ordinance makes it mandatory for MFIs operating in Karnataka to register with district authorities. "Microfinance institutions must register with district collectors and furnish details regarding the interest rates they charge, borrower information, and outstanding loans (susthi loans)," it stated.