Karnataka MFI ordinance isn't that bad, but industry is still worried

The new ordinance notified by the Karnataka government to regulate microfinance loan recoveries may have come as a relief to non-bank microfinance companies regulated by the Reserve Bank of India (RBI), but experts warn that collections could get impacted in the next two quarters.

- Gopika Gopakumar

The Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance 2025 has made it clear that all regulated banks and microfinance institutions (MFIs) will be kept outside the provisions of the ordinance.

The ordinance, approved by the Karnataka governor, looks to penalize only unregulated MFIs and lenders for their coercive loan recovery practices by imposing a jail term of up to 10 years and a fine of up to ₹5 lakh for violations.

While this has come as a relief to the regulated MFI lenders, industry players caution there could be a short-term impact.