Bengaluru: Amid rising complaints of harassment by microfinance institutions in Karnataka, the state government has decided to take strict action to address the issue. Many low-income individuals rely on these institutions for urgent financial needs such as medical treatment, children's education, and wedding expenses. However, reports of aggressive loan recovery tactics have prompted the government to intervene and implement immediate measures to curb such practices.
High-Level Meeting Chaired by the Chief Minister
On January 25, Chief Minister Siddaramaiah chaired a crucial meeting attended by representatives of microfinance institutions, regional directors of the Reserve Bank of India (RBI), officials from the State Level Bankers' Committee, senior police officers, and the Department of Cooperation. Various measures to regulate microfinance institutions and prevent exploitation were discussed, and necessary directives were issued to ensure compliance.
Karnataka’s Laws on Money Lending
- Karnataka Money Lenders Act, 1961: As of December 31, 2024, a total of 20,425 institutions are registered under this act, including 6,590 money lenders, 6,772 pawn brokers, and 7,063 finance corporations.
- Karnataka Prohibition of Excessive Interest Act, 2004: This law sets a maximum interest rate of 14% per annum on secured loans and 16% per annum on unsecured loans.
The government has urged borrowers to verify an institution’s registration status, interest rates, and repayment terms before taking loans to avoid potential harassment.
What Are Microfinance Institutions?
Microfinance institutions (MFIs) provide loans to individuals with an annual income of up to ₹3 lakh. These institutions include cooperative societies, non-banking financial companies (NBFCs), NGOs, trusts, and small business lenders. Various government departments oversee their operations, while 31 RBI-registered microfinance companies operate in Karnataka with 3,090 branches and 37,967 employees. These institutions have disbursed loans amounting to ₹59,367.76 crore across 1,09,88,332 accounts. If an institution violates regulations, strict action is taken with RBI approval.
Mandatory Regulations for Microfinance Institutions
The Karnataka government has directed all microfinance institutions to adhere to the following guidelines:
- Borrowers must be informed of all terms and conditions in their local language.
- Loan applications must clearly specify all necessary details.
- Borrowers must receive a signed receipt for the loan.
- Complete loan details must be provided in writing within seven days.
- Upon request, borrowers must be given copies of relevant documents.
Women’s Self-Help Groups and Loans
Women-led Self-Help Groups (SHGs) have shown a 99% loan repayment success rate. Unlike traditional banks, these institutions do not require collateral or property guarantees, making them a preferred choice for borrowers.
Helpline Numbers for Complaints
Individuals facing harassment from illegal money lenders or microfinance institutions can report their grievances through the following helpline numbers:
- RBI Helpline: 14448
- State Government Helpline: 112 or 1902
The Karnataka government has assured that microfinance borrowers will receive full legal protection against any form of exploitation.
Chief Secretary Dr. Shalini Rajneesh emphasized that some unauthorized money lenders exploit the financial struggles of low-income individuals by charging exorbitant interest rates. She urged the public to report such violations through the helpline numbers. Complaints regarding regulatory breaches by Microfinance Institutions (MFIs) can be reported to the RBI helpline at 14448, while affected borrowers can also reach out to the State Unified Helpline at 112 or 1902 for immediate assistance.