The Karnataka government has resent the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, 2025, to Governor Thaawarchand Gehlot without any changes. However, it has offered a detailed explanation on the clarification sought by the Governor on various aspects.
An official communique from Chief Minister Siddaramaiah’s office confirmed on Monday that the Ordinance had been resent to the Governor with a detailed explanation.
The government had taken the Ordinance route to enact the legislation to protect the interests of small borrowers in the wake of more than a dozen people committing suicide allegedly following harassment by microfinance institutions (MFIs). However, the Governor had returned the Ordinance last Friday suggesting that it would benefit only borrowers while no provision has been made to provide protection to lenders.
He had broadly sought six clarifications for which the government has provided its reply.
Clarifications offered
It is also necessary to protect the lawful and genuine rights of the persons who have lent to needy persons within the existing laws with proper checks and balance mechanism, the Governor had observed. In response to this, the government clarified that loan recovery of legally registered firms had not been stopped, but they had only been barred from recovering loans through illegal means.
To the suggestion that the legislation could have waited for sometime to get the views of the legislature, the government said the legislation would again be brought up before the State legislature for a debate and its views would be incorporated then. However, the government was well within its right to promulgate the Ordinance as an emergency measure, the government said.
The Governor had said: “If all the pending loans with interest as on date is discharged, the lawful and genuine lenders may face trouble.” Referring to this, the government clarified that none of the unlicensed firms or persons had the right to lend or charge excessive interest and penal interest. Also, such loans were not eligible for recovery, the government made it clear in its response.
Referring to the Governor’s objection that the proposed Ordinance goes against the spirit of natural justice by violating the rights of lending firms, the government said the Ordinance had never barred legally registered and licensed firms from recovering their loans.
To another objection that the provision of imposing penalty of ₹5 lakh against the maximum loan of ₹3 lakh and imprisonment of 10 years were disproportionate compared to the provisions available in other laws for similar offences, the government said the penalty and imprisonment clause were not based on the quantum of loans, but were intended to prevent harassment faced by defaulters.
Referring to the concern that asking MFIs return the security if obtained against loans would affect their business in the long run and affect small borrowers in remote areas, the government clarified that the microfinance firms were supposed to lend without any security as per the RBI norms.
To another objection that the provision of the Ordinance apply only to unregistered firms while those registered with RBI had been kept out of this, the government clarified that such firms were bound by the RBI norms and hence there was no need to bring them under the Ordinance.
On existing laws
The Governor had also observed that unlawful activities by the lending agencies could be controlled through the police by effective enforcement of existing laws. Referring to this, the government argued that the existing legislations did not provide any effective tool to strictly regulate these firms.
Published – February 10, 2025 09:53 pm IST