Karnataka CM Siddaramaiah chaired a high-level meeting on Saturday over the issue.
Credit: DH File Photo
Bengaluru: Karnataka Chief Minister Siddaramaiah announced on Saturday that his government will promulgate an ordinance for a tough law to 'protect genuine borrowers' from microfinance companies whose usury and coercive loan recovery methods have led to suicides, causing widespread public anger.
The ordinance is expected, among other interventions, to regulate microfinance companies and prohibit them from “outsourcing” loan recovery functions, for which goondas and rowdies are roped in to intimidate borrowers. Also, recovery of loans after 5 pm will be prohibited.
“There are many unregistered companies. That’s where the problem is. And that’s why we’re bringing a new law to regulate unregistered financial institutions,” Siddaramaiah said after chairing a high-level meeting with his deputy DK Shivakumar, Law Minister HK Patil, Home Minister G Parameshwara, Revenue Minister Krishna Byre Gowda and top officials.
“We’re banning the outsourcing of loan recovery functions. That’s also why we’re bringing in a law,” Siddaramaiah said.
Siddaramaiah said the government will not stop microfinance companies from lending and recovering loans. “But goondas and rowdies are being used for recovery. That shouldn’t happen. Forcible recoveries causing harassment, fear, insult, disrespect, locking up homes...it’s because of such harassment that people are suffering,” he said.
So far, four people who had borrowed loans have died by suicide and seven cases have been booked against microfinance companies, Siddaramaiah said.
According to Siddaramaiah, the Reserve Bank of India (RBI) allows microfinance companies to levy up to 17.07% interest. “But the rates are exorbitant ranging between 21% and 29%. There’s no regulation,” he said.
“Also, one family can’t be given more than three loans. But 4-6 loans have been given without looking at repayment capacity,” Siddaramaiah said, adding that the government wants to regulate this, too.
The proposed ordinance will be drafted by the departments of law, revenue, finance and home. “We’ll also look at a law that Andhra Pradesh has,” Siddaramaiah said.
Apart from promulgating the ordinance, Siddaramaiah said the government has also decided to amend existing laws governing money lenders and pawn brokers.
The police have been instructed to take up cases without waiting for complaints. “If there are violations of rules, regulations and laws, police can initiate sun motu action,” Siddaramaiah said.
A helpline will be set up in the offices of deputy commissioners in every district for citizens to lodge complaints against microfinance firms. “The police can initiate action based on these complaints,” the CM said.