Karnataka Governor gives nod to Ordinance on MFIs, makes a few suggestions

Governor approves Karnataka Micro Loan Ordinance to regulate MFIs, with suggestions to protect both borrowers and lenders.

Governor Thaawarchand Gehlot has finally approved The Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, 2025, with a few suggestions on what needs to be incorporated at the time of its execution.

Following the clearance, the Ordinance was gazetted on Wednesday.

With this, hurdles have been cleared for cracking the whip on unregistered and unlicensed micro finance institutions (MFIs) that employ coercive means to recover loans given to poor people.

While giving his assent, the Governor observed, “The Ordinance is a good step towards regulating the actions of unregulated/unregistered MFIs and moneylending agencies or organisations, and thereby, protecting and relieving the economically vulnerable groups and individuals from the undue hardship of usurious interest rates and coercive means of recovery.”

At the same time, he also said, “Even though the Ordinance has the best of intentions, the legal and social impact of the Ordinance needs to be deliberated in detail in both the legislature Houses.”

The Governor said that at the time of execution of the Ordinance, the State government should ensure that all legal, registered and regulated bodies like banks (including small finance banks, local area banks, regional rural banks and business correspondents of banks) regulated by RBI, all cooperative banks and all non-banking financial companies and housing finance corporations, registered under RBI, were not to be harassed by either misinterpretation or misutilisation of this legislation.

He suggested to the government to take precaution to ensure that lawful and genuine lenders did not face trouble. If not, they had no remedy to recover their pending amounts which may lead to legal battles and burdensome litigations, he pointed out, and asked government to take all corrective steps.