Karnataka Governor Returns Anti-Harassment Microfinance Ordinance, Citing Excessive Penalties

The Karnataka Governor has rejected the state government's proposed ordinance aimed at curbing aggressive microfinance loan recovery practices, expressing concerns over its stringent penalties and potential negative impact on the microfinance sector.

The Karnataka Micro Finance (Prevention of Coercive Actions) Ordinance 2025, which proposed imprisonment up to 10 years and fines up to Rs 5 lakh for microfinance institution executives using intimidation tactics, was returned by the Governor's office. Officials argued that the proposed punishments were disproportionate and suggested that existing legal framework could adequately address the issue through police action.

The Governor's office also warned that such severe measures could adversely affect the microfinance sector, which primarily serves low-income borrowers who depend on these institutions for financial support.

This development comes shortly after Deputy Chief Minister DK Shivakumar's announcement of the ordinance at his Sadashivanagar residence. "The government will empower the police to handle these situations more effectively. We won't allow microfinance companies to take the law into their own hands," Shivakumar had stated.

The state government's initiative was prompted by numerous complaints and FIRs filed across districts including Belagavi, Bidar, Mysuru, and Ramanagara, where borrowers from economically weaker sections reported harassment by recovery agents. In response to these incidents, the administration had established helplines at district headquarters to support affected borrowers.

The rejection of the ordinance marks a setback for the state government's efforts to regulate microfinance recovery practices and raises questions about alternative approaches to protecting vulnerable borrowers while maintaining a viable microfinance sector.