Bengaluru: Governor Thaawarchand Gehlot has rejected the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, 2025, citing concerns over its lack of provisions to safeguard lenders while aiming to protect borrowers.

According to sources, the Governor emphasised the need for a comprehensive discussion on the matter within the state legislature. With the budget session scheduled for March 2025, he suggested that the ordinance should be debated thoroughly in the assembly instead of being rushed through as an executive order.

The proposed ordinance was drafted in response to rising concerns over alleged harassment by microfinance institutions (MFIs) attempting to recover loans. The issue has been linked to a series of suicides by borrowers struggling with repayment pressures. The government sought to introduce the ordinance as a preventive measure against such coercive recovery practices.

Despite acknowledging the need to protect vulnerable borrowers, the Raj Bhavan stressed the importance of maintaining a balanced approach. Officials indicated that the Governor believes it is also the state’s duty to ensure that legitimate lenders, who provide financial assistance within legal frameworks, are not left without recourse to recover their dues. Governor Gehlot further noted that an abrupt discharge of all outstanding loans could create difficulties for lawful lenders, potentially triggering legal complications. He advised the government to craft a more comprehensive law that not only addresses borrower protection but also establishes clear mechanisms for lenders to reclaim their dues fairly and transparently.