Representative illustration of a loan.
Credit: iStock Photo
Bengaluru: Microfinance companies may be asked to receive loan applications and disburse credit through an online process, which is one of the aspects the government wants to include in a law whose draft was finalised after undergoing multiple changes.
The Karnataka Micro Finance (Prevention of Coercive Actions) Ordinance, which was revised at least eight times, was finalised on Saturday at a meeting involving Law Minister HK Patil, Revenue Minister Krishna Byre Gowda, Chief Secretary Shalini Rajneesh and other top officials.
Patil said the ordinance was finalised after authorities found “technical difficulties” in the draft. “We have finalised the ordinance. It’ll be sent to Chief Minister Siddaramaiah,” he said.
Officials were asked to incorporate an online portal to track and update details on loan disbursements to ensure transparency and avert over-lending so that the poor are not trapped in debt cycles.
Gowda said officials were also asked to see to it that interest rates are transparent and in compliance with Reserve Bank of India (RBI) regulations.
An ombudsman, comprising the additional deputy commissioner and assistant commissioner in each district to oversee microfinance operations, should be appointed in each district to oversee microfinance operations.
Notably, the government does not want microfinance companies to take any assets or valuables as collateral for loans. The proposed law may also place strict restrictions against using intermediaries to harass borrowers who default on repayments.
“Officials have been instructed to incorporate these key aspects into the legal framework,” Gowda said.
Gowda also slammed the union government for turning a blind eye. “Microfinance comes under the Centre. What’s the Centre doing? While the state government doesn’t have powers, we’re still trying to protect people. It’s not a joke to prepare an ordinance in a week’s time,” he said.
The government has dropped some provisions that were included in earlier drafts. For instance, restricting the interest amount so that it does not exceed the principal has been removed. Also, the requirement for a microfinance company to obtain the consent of the borrower’s family member was scrapped.
While the government is likely to retain a 3-year imprisonment as the maximum term, the fine amount may be hiked to Rs 5 lakh from the earlier Rs 1 lakh.
There is apprehension within the government over the proposed law. "Microfinance is needed as it caters to unbanked citizens. Overregulation may create another layer of corruption," a senior officer said.