Moneylenders in Karnataka doing business worth Rs 40,000 cr in 'black money': Law Minister

Bengaluru: According to Karnataka's Law & Parliamentary Affairs Minister H K Patil, the business being done by unregistered money lenders in the state amounted to Rs 40,000 crore in 'black money'. He was speaking at the current Karanataka Assembly session where a Bill to protect the interests of borrowers was passed on Monday.

The Bill, passed unopposed with a voice vote, replaces the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, that was promulgated on February 12.

The Bill proposes up to 10 years imprisonment and Rs 5 lakh fine if microfinance institutions or moneylenders use coercive action for recovery of loans from borrowers.

Piloting the Bill, Patil said unregistered finance institutions and moneylenders may have lent Rs 40,000 crore in the state, citing a study that was done.

"This is not government grants or banking institution loans. This is black money. Any business done honestly can yield not more than 15-20% profit. But here, a man invests his black money and gets 40-50% profit," the minister said, adding that 15 people had died by suicide because of coercive loan recovery methods of microfinance institutions.

Patil said this black money is not used merely to get rich.

"These moneylenders, who charge 50-60% interest, are also applicants like you applying for an MLA ticket. So, it's black money, big profit and then political power. This system is spoiling the health of our society," he said.

The minister also moved an amendment exempting all registered cooperative societies and Souharda Societies from the purview of the Bill.

The Bill had already kept RBI-regulated banks, non-banking financial companies and housing finance corporation out of its purview.

Leader of the Opposition R Ashoka claimed that 30 people had died and the government should have acted sooner to save lives. He also wondered if the proposed law would pass judicial scrutiny.

"I'm not sure how this Bill will help. Existing laws were enough to rein in microfinance institutions. Has any financier been sent to jail so far?" Ashoka asked.

"The existing laws were good, but loose," Patil responded. "The police couldn't keep offenders for even an hour. They'd get out on a station bail," he added.

The Assembly also passed corresponding amendments to the Karnataka Money Lenders Act, Karnataka Prohibition of Charging Exorbitant Interest Act and Karnataka Pawnbrokers Act.