A file image of Karnataka CM Siddaramaiah (left) and Governor Thaawarchand Gehlot
Credit: DH Photo
Bengaluru: The Siddaramaiah administration on Wednesday promulgated an ordinance that proposes up to 10 years imprisonment and Rs 5 lakh penalty for microfinance companies that cause “undue hardship” to borrowers.
The Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance was notified after Governor Thaawarchand Gehlot signed off on it.
Gehlot had, on February 8, returned the ordinance to the government flagging regulatory excesses.
While giving his assent Wednesday, Gehlot asked the government to ensure that the law is not ‘misinterpreted’ or ‘misutilised’ to harass “legal, registered and regulated” banks.
With the ordinance notified, all microfinance institutions, money-lending agencies and lenders have to register with deputy commissioners within 30 days.
Prohibiting 'coercive’ loan recovery methods, the government will act against microfinance companies or lenders if they use pressure, violence, insults, private/outsourced agencies, persons with a criminal background and so on.
Under the law, the government has proposed an ombudsman to act as a mediator to settle loan disputes.
Also, the government has given officers ranked at the level of Deputy Superintendents of Police powers to file cases suo motu.
The law further bars microfinance companies and money-lenders from seeking securities (pawns, pledges etc) from borrowers.
Siddaramaiah was bullish about the ordinance in the wake of suicides caused by usury and predatory loan recovery methods, which led to widespread public anger.
“Even though the ordinance has the best of intentions, the legal and social impact needs to be deliberated in detail,” Gehlot wrote on the file approving the law.
'No repayment' clause
Farmers, women, agricultural labourers, footpath vendors, dairy workers, migrant workers and "people who are disadvantaged" need not repay loans, including interest, borrowed from "unregistered and unlicensed" microfinance companies, money-lending agencies or lenders as per Section 14 of the ordinance.
"No civil court shall entertain any suit or proceeding against the borrower for the recovery of any amount of such loan including interest," the ordinance states.
"If all the pending loans with interest as on date is discharged," Gehlot warned, "the lawful and genuine lenders may face trouble."
Gehlot has asked the government to "rethink" on this aspect, stating that preventing any person from fighting for one's rights and legal remedies may violate Constitution Articles 19 and 32.