Tue Feb 04 21:46:56 IST 2025: ## Karnataka Increases Penalties for Microfinance Abuses

**Bengaluru, February 4, 2025** – The Karnataka government has significantly increased penalties for microfinance institutions (MFIs) engaging in coercive debt recovery practices. Home Minister G. Parameshwara announced that the draft of the Karnataka Microfinance (Prevention of Coercive Actions) Ordinance, 2025, increases the maximum prison sentence from three to ten years, along with a ₹10 lakh fine.

The new ordinance aims to curb the use of intimidation, violence, and harassment by MFIs and their agents to recover loans. It explicitly prohibits the involvement of private agencies or individuals with criminal records in debt collection. The draft has been sent to the Governor for assent.

The stricter penalties were implemented after considering potential legal challenges from MFIs, and following a series of borrower suicides linked to usurious interest rates and coercive debt recovery. Minister Parameshwara stated that the harsher penalties are intended to serve as a deterrent. The previous draft, with a proposed three-year sentence and ₹5 lakh fine, was delayed due to consultations to preempt legal challenges. The updated ordinance also provides relief to borrowers targeted by unlicensed or unregistered MFIs.

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