Karnataka to crack down on money-lenders charging exorbitant interest rates

Bengaluru: In a decisive move to curb the harassment of borrowers by microfinance institutions and money-lenders, the Karnataka Government is set to enforce stricter regulations, including a 10-year prison term for charging exorbitant interest rates.

The Department of Co-operation is preparing amendments to existing laws to impose severe penalties on money-lenders, pawn-brokers, and unauthorised financial institutions exploiting borrowers.

Currently, the Karnataka Prohibition of Charging Excessive Interest Act, 2004, provides for a maximum sentence of three years, but the Government plans to increase it to 10 years, along with a fine exceeding Rs. 1 lakh.

Amendment Bill

Co-operation Minister K.N. Rajanna emphasised that the Government will strictly enforce existing laws while introducing new provisions to curb harassment. He has already held discussions with officials regarding the Karnataka Prohibition of Charging Excessive Interest (Amendment) Bill, which will be presented in the upcoming Legislative Session.

Under the Karnataka Money Lenders Act, 1961, borrowers can deposit the remaining loan amount, including interest, in a competent Court, which will compel lenders to respond within 15 days. The Court can then adjust excessive interest, order loan settlements, and even return forcibly taken property.

Additionally, if a borrower dies by suicide due to harassment by lenders, the lender will be held criminally responsible. The current penalty of a three-year jail term and a Rs. 30,000 fine for violators is also set to be significantly increased.

Draft Ordinance ready

Meanwhile, Law Minister H.K. Patil announced that a draft Ordinance to regulate microfinance companies has been prepared and sent to Chief Minister Siddaramaiah for approval. Once cleared, it will be forwarded to the Governor for final approval.

Speaking to reporters in Gadag, Patil criticised microfinance institutions for inhumane loan recovery methods, which have pushed many borrowers into distress. The Ordinance aims to curb such harassment, ensuring better protection for borrowers.

The Government intends to strengthen legal provisions and by introducing an Ordinance, Karnataka is set to crack down on predatory lending practices and provide relief to borrowers suffering under unfair interest rates and aggressive loan recovery tactics.