Next Cabinet meet to discuss Ordinance to rein in MFI loan recovery methods, says Karnataka CM

The next Cabinet meeting will discuss the subject of the proposed ordinance to rein in unlawful recovery of loans by micro-finance institutions (MFIs), Chief Minister Siddaramaiah said on Tuesday.

His response to media queries came as reports of suicides and suicides attempts, and fleeing by people of their villages after coming under threats by recovery agents are emerging almost every day.

Revenue Minister Krishna Byre Gowda has issued instructions to deputy commissioners (DCs) to take stern action against MFI executives who had resorted to harassment of borrowers for recovery of loans.


Gowda held a meeting with DCs on Monday where he said MFIs have advanced Rs 59,000 crore in loans in Karnataka and, have, at times, lent aggressively in violation of RBI guidelines to gain market share. Often, the MFIs were ignoring the repayment capacity of borrowers, triggering unpleasant incidents, Revenue Minister Krishna Byregowda said.

The RBI does not allow lending more than Rs 2 lakh, but no one was following that. Some MFIs were lending about Rs 5-6 lakh per family, pushing poor people into a debt trap, Gowda told the media Monday evening after the DCs conference.

The government has decided to use the powers available within their existing laws to discipline errant MFIs. If they were allowed to continue with their existing ways, it could lead to bigger tragedies, according to Gowda.

The revenue minister has asked DCs to hold meetings with MFI executives at the district level and ensure they complied with the RBI norms since non-repayment of loans by borrowers could threaten the very existence of MFIs.

The ordinance was meant to safeguard the rights of borrowers and prevent harassment by lending firms, the CM said, last week.

According to MicroFinance Institutions Network (MFIN), the total gross loan portfolio of microfinance institutions in the state has surged from Rs 16,946 crore (Mar-2019) to an impressive Rs 42,265 crore in the last financial year (Mar-24).