Draft ordinance exempts borrower from repaying loans by unregistered MFIs in Karnataka

Bengaluru: The draft Karnataka micro finance (prevention of coercive actions) ordinance-2025 aims not only to give relief to borrowers from coercive action by micro finance institutions (MFIs), money lending agencies or organisations, but also proposes that borrowers will be completely discharged from repayment of loans and interests taken from unlicensed MFIs, lending agencies or organisations.    

The ordinance says every loan advanced before the ordinance comes into effect, including interest if any payable by the borrower to unlicensed and unregistered MLIs, shall be deemed to be wholly discharged. 

It says no civil court shall entertain any suit or proceeding against the borrower for the recovery of any amount of such loan, including interest. 

The draft mandates that all MFIs should apply within 30 days from the date the ordinance comes into effect for registration before the registering authority of the district specifying therein the village or town in which they have been operating or propose to operate.

Apart from this, MFIs will now disclose the rate of interest charged, system of conducting due diligence, system of recovering money and list of persons authorized for lending or recovering, name and address of borrower, total principal amount, amount already recovered from borrower, balance yet to be recovered. 

They will have to give a written undertaking that they shall always act in conformity with the provisions of the ordinance.

A senior official told DH that the ordinance has been revised more than half a dozen times to prevent it from being questioned in court.

A fresh revised copy of the ordinance has been sent to Chief Minister Siddaramaiah for his approval.

‘“As soon as the CM clears the ordinance, we will send it to the governor for approval,” the official said.