BENGALURU: Facing public outrage over the harassment by microfinance companies over unpaid debts leading to suicides and the exodus from villages, Karnataka govt on Saturday decided to amend existing laws through an ordinance to regulate the sector and establish district helplines to protect debtors.
CM Siddaramaiah announced that the state would introduce new legislation based on successful models from other states, such as Andhra Pradesh. He clarified that while the state govt does not intend to stop the operations of these firms, it will ensure that borrowers are not coerced.
“Microfinance institutions are operating without proper regulation, and I have warned them and RBI officials. If their activities are not regulated, the state govt will intervene,” he said, stressing the possibility of police action against errant firms.
Expressing concern over microfinance companies charging exorbitant interest rates in violation of rules, the CM said there were complaints that these firms were charging interest rates of 20% to 28% annually, despite RBI capping the rate at 17%. He added that these companies were disbursing loans of up to Rs 8,000, despite RBI ceiling of Rs 3,000.
He said that outstanding microfinance loans in Karnataka currently stand at Rs 59,368 crore, with a total of 1,09,88,332 accounts in distress, accounting for 15% of the state’s population.
The chief minister also highlighted the importance of adhering to RBI guidelines, which restrict recovery visits after 5pm and prohibit the use of third-party agents for debt collection. He expressed concerns about unlicensed lenders and called for central govt intervention to regulate them.
Deputy CM D K Shivakumar, who attended a meeting chaired by the CM on the issue, said seven cases have already been filed against microfinance companies.