Governor says he rejected Karnataka’s microfinance ordinance as it does injustice to lenders

Bengaluru, Feb 7 (PTI) Governor Thaawarchand Gehlot on Friday rejected Karnataka Micro Finance (Prevention of Coercive Actions) Ordinance 2025, stating that in its current form, the lenders, who are also part of the society, are being done a great injustice.

Siddaramaiah-led Congress government had proposed to regulate microfinance in response to a spate of suicides and multiple complaints from various parts of the state against predatory loan recovery methods used by microfinance firms.

Earlier in the day, the Chief Minister’s Office (CMO) said, the governor cited several reasons rejecting the ordinance.

Aimed at protecting borrowers from harassment by microfinance institutions (MFIs), the Karnataka government drafted the ordinance with penal provisions, including a jail term up to 10 years, and fine of Rs five lakh for violation.

Later in a press statement issued by the Raj Bhavan on Friday, the governor said as per the ordinance, the state government is proposing to discharge all loans, including interest, when the ordinance comes into effect and that no civil court shall entertain any proceedings against the borrowers.

“But if all the pending loans with interest as on date are discharged, the lawful and genuine lenders may face trouble. Further, they have no remedy to recover their pending amounts,” stated the governor.

He said that as a set principle of natural justice, every person has a right to fight for his rights and legal remedies.

“Preventing any person from fighting for his rights may lead to violation of fundamental rights provided under Article 19 & 32 of the Constitution of India,” Gehlot added.

He also said this is against the principles of lending, which are followed by government banks themselves.

Further, the proposed ordinance may lead to negative impact on the business prospects of the state by affecting the self-help groups which play a big part in uplifting the lowest rung of the society, the governor said.

He said the ordinance seeks to control only the unregistered and unlicensed lending agencies, but it is important to note that these unregistered and unlicensed lenders who are genuine individuals with a conscience are usually the saving grace for those who are neglected by the traditional credit system.

“They enable greater access to credit and help in the robust growth of the finance sector when wielded in the right manner,” said Gehlot.

The governor said the terms of punishment too –10-year imprisonment and Rs 5 lakh fine — are disproportionate compared to the provisions already available in other laws for similar offences.

In any case, he said, when the maximum amount of loan that can be lent is Rs 3 lakh, the proposed fine of Rs 5 lakh is against natural principles.

The governor pointed out that to control the forceful and unlawful activities of unscrupulous agencies, the state through its police and departments concerned have already got provisions under the Karnataka Money Lenders Act, 1961, Negotiable instruments Act, 1881, The Karnataka Debt Relief Act, 1976 and Indian Penal Code, including Karnataka Police Act to deal such discrepancies.

Gehlot said efficient implementation of existing frameworks by enforcement machinery could help regulate these problems in an efficient manner.

He also advised that since the budget session will commence next month, instead of bringing an ordinance in a hurry, the state must deliberate this issue in detail and bring an effective enactment in the interest of the affected people and to protect their rights.