Bengaluru:  Even as the harassment by money-lenders and Microfinance Institutions (MFIs) during loan recovery continues, the Karnataka Government has proposed a three-year imprisonment  and other strictures for microfinance companies under a Law it has drafted to protect borrowers from harassment.

The State Cabinet on Thursday authorised Chief Minister Siddaramaiah to finalise the draft of the Karnataka Micro-Finance (prevention of coercive and inhuman actions) Bill.

The Law, which the Government wants to enact by promulgating an ordinance, is in response to a spate of suicides, assaults and numerous complaints against predatory loan recovery by Microfinance firms. The Penal provisions proposed by the Government include a jail term of 6 months to 3 years, with a fine of upto Rs. 1 lakh. Offences under the Law will be cognisable and non-bailable. The Law empowers the Police to register cases suo motu against the microfinance or money-lending agencies.

As per the draft, all MFIs are required to register with the Government (Deputy Commissioners) within 30 days from the enactment of the Law by specifying details about their operations, rate of Interest being charged, system of loan recovery and so on. The draft Law also bars microfinance companies and money-lenders from seeking securities (pawns, pledges etc.) from borrowers.

Prohibiting ‘coercive and inhuman’ loan-recovery methods, the Government will act against microfinance companies or lenders if they use psychological

pressure, violence, unscrupulous persons with criminal background etc. This apart, the Karnataka State Government has proposed an ombudsman to act as a mediator to settle the loan disputes.

However, the much-awaited ordinance to curb the harassment by money-lenders and microfinance companies during loan recovery is expected to be promulgated in a couple of days. The delay is because that a decision  could not be arrived at either in the Cabinet meeting on Thursday  or the meeting of the Group of Ministers with CM Siddaramaiah that took place  later in the day.