Accused booked under ‘The Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, 2025’ to face maximum 10-year jail and Rs. 5 lakh fine: Chief Secretary Shalini Rajneesh

Bengaluru: The newly notified The Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, 2025, puts a brake on forcible recovery of loan amount and rate of interest amount from the borrowers. Any violation in this regard attracts 10 years imprisonment and levying of fine amount up to maximum Rs. 5 lakh.

This is one among the key features included in the Ordinance that has received a stamp of approval from the Governor that assures to prevent the borrowers from the burden faced by taking loan from micro- finance companies and other lending agencies and the exorbitant rate of interest charged by the private money-lenders.

Those charged under the aforementioned law, won’t be liable for bail and the Police should register the case soon after receiving the complaint, without any inordinate delay.

If the victims are hesitant to file a complaint, the Dy.SP and above cadre officers are empowered to file a suo motu case against the accused.

Non-registered firms

Most importantly, the norms included in the Ordinance are applicable only for those micro- finance companies, non-registered with the Reserve Bank of India (RBI), Central and                                                 State Governments.

On the other hand, the Ordinance is expected to bring in a semblance of financial discipline among the micro-finance firms and save the loanees from suffering harassment and forcible repayment of loan.

Chief Minister Siddaramaiah, who has issued a press release in this regard, has attempted to reach the key features of the Ordinance to the people.

Chief Secretary affirms

Meanwhile, Shalini Rajneesh, Chief Secretary to the Government of Karnataka, has stated that the person forcing repayment of loan shall be subjected to inquiry and is liable for imprisonment up to 10 years and a fine of up to Rs. 5 lakh.

The offences are treated as cognisable and non-bailable. No Police Officers should refuse to receive the complaint and the Officers in the cadre of Dy.SP and above can file a suo motu case. The Government is vested with powers to issue orders for timely implementation and ensure financial discipline in the non-registered micro-finance firms.

The Ordinance is effective since Feb. 12, 2025 and aims to save especially the economically weaker, women, farmers and women self-help groups (SHGs) from harassment in repaying loan.

It is also succinctly stated in the order that, the micro-finance firms should not seek any security for disbursing the loan amount and the loan applicants should be informed in writing about the rate of interest charged towards the loan, in a transparent manner.

Rs. 60,000 crore loan

The registered micro-finance firms have advanced about Rs. 60,000 crore to about 1.09 crore people, while there are no details about the extent of loan advanced by non-registered firms, but it is roughly estimated at about Rs. 40,000 crore.

It is mandatory for micro-finance companies to register with the respective Deputy Commissioner’s Office and furnish details related to the rate of interest charged, details of loan applicants and the defaulters. 

If the finance firms are functioning without submitting the tri-monthly and annual transaction details, they shall be awarded imprisonment up to six months or impose a fine extended up to Rs. 10,000 or either both.