The Karnataka Assembly on Monday adopted the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Bill that seeks to replace an ordinance that had been promulgated earlier to protect defaulters from harassment by recovery agents from unlicensed and unregistered microfinance institutions (MFIs).
As part of efforts to further protect the interests of poor loanees, the Assembly adopted three more Bills – Karnataka Pawn Brokers (Amendment) Bill, Karnataka Money Lenders (Amendment) Bill, and Karnataka Prohibition of Charging Exorbitant Interest (Amendment) Bill.
Exemption to co-op banks
Piloting the Bill to replace the Ordinance, Law and Parliamentary Affairs Minister H.K. Patil introduced an amendment as per the suggestion of Co-operation Minister K.N. Rajanna to exempt the co-operative institutions/banks and Souharda institutions and banks from the purview of the Bill as they are guided by strict norms stipulated by the RBI.
Mr. Patil said the legislation had become necessary to instil confidence among loanees and also prevent recovery agents from behaving in an undignified manner with them in the wake of 15 defaulters committing suicide recently.
He expressed concern that studies had revealed that unregistered microfinance firms had involved in lending to the tune of ₹40,000 crore in the State. “This is nothing but black money which is in circulation,” the Minister said, and pointed out that they were charging exorbitant interest rates that even touched 120% a year and 10% a month.
The poor people who would take small sums of money were actually being fleeced by such lenders, he said. “The poor vegetable vendors take loans from such private unregistered money lenders on a daily basis before procuring vegetables for sales in the morning. If they borrow ₹5,000, the moneylenders deduct ₹500 and give them only ₹4,500. The vegetable vendors will have to return ₹5,000 by the end of the day. This works out to ₹500 or 10% a day,” Mr. Patil said.
He also said that there would be 10 to 20 motorcycles parked in front of the houses of moneylenders as they illegally take away the vehicles from defaulters without giving them time to pay up the instalments.
‘Show commitment’
Leader of the Opposition in the Assembly R. Ashok argued that simply bringing in a legislation will not help solve the problem. He urged the government to show political commitment in acting against illegal moneylenders.
Deputy Leader of the Opposition Arvind Bellad sought to link this problem with the corruption in the Police Department. Alleging that the police were hand-in-glove with such unauthorised moneylenders, he maintained that the problem would get resolved if the government ensures that police transfers take place without any money involved.
The three other Bills propose to increase imprisonment term and penalty amount for moneylenders and pawn brokers if they violate norms related to interest rates and recovery methods.
Published – March 10, 2025 08:44 pm IST