Karnataka Chief Minister Siddaramaiah, on Saturday, announced that a new legislation would be implemented soon to protect the interest of genuine borrowers and also warned of criminal proceedings against microfinance companies resorting to criminal force, intimidation and harassment to recover loans.
Taking note of the growing menace of loan recovery agents, which has resulted in a series of suicides and mass migration of families in rural Karnataka, the chief minister held a high-level meeting with representatives of banking, finance and microfinance institutions (MFIs) and officials from the Home, Finance, Law and Revenue department.
“The government is committed to protecting the interests of those who take loans from microfinance. Strict legal action will be taken against those who harass the borrowers. A new law will be enacted through an ordinance to protect the interests of borrowers,” said Siddaramaiah, during a press meet followed by the high-level meeting.
The chief minister directed every district administration to start a helpline and register suo motu complaints against recovery agents and finance company owners who violate the loan recovery norms stipulated by the Reserve Bank of India.
“The new law will empower the police to tackle the harassment cases better and also take action against illegal pawnbrokers and moneylenders who are operating without a license,” said Siddaramaiah, who also expressed the government’s inability to ban the MFIs as they were licensed under the RBI.
Asserting that there was a need for stringent law to protect the borrowers, the chief minister said, “RBI allows MFIs to charge interest rates of up to 17.07 per cent, though it restricts the credit limit to a few thousands.”
“However, we will also urge the Centre to frame new laws to regulate the MFIs. For now, the microfinance companies are barred from hiring goons as recovery agents, visiting the borrowers’ home or office after 5 pm for recovery or using any unlawful means to extract the loan,” added Siddaramaiah.
Deputy Chief Minister DK Shivakumar stated that the harassment cases were mostly related to illegal MFIs and that the police had been directed to crack down on these companies and the recovery agents. “We have directed the IGP to round up these elements and put them behind bars,” said Shivakumar.
Karnataka has 31 licensed MFIs with 3,090 branches with a total of 37,967 employees, an outstanding amount of Rs 59,367 crore across 1.09 crore accounts.
Earlier, the chief minister, who held a closed-door meeting with the finance institutions, took them to task for failing to control their recovery agents from using illegal means to recover the loans. He demanded to know if the MFIs had taken the court permission before sealing the loan defaulter’s houses.
Siddaramaiah sought to know if the MFIs had explained the terms and conditions of the RBI in the borrowers’ native language before extending the loan and questioned why the companies were offering huge loans beyond the RBI’s prescribed limit and without checking the borrower’s creditworthiness.
Pointing out the anomaly of the MFIs giving loans repeatedly to the same borrowers without considering their repayment capacity, the CM wondered if they had really carried out the Aadhaar KYC formality before disbursement of the loan.
“You are giving loans to the same borrowers repeatedly only to increase your business. And when the borrower fails to repay, you are resorting to illegal means to recover the same. Our government will not tolerate this anymore,” said the chief minister, who demanded to know if the RBI officials had cancelled the licenses of MFIs found to be violating the norms.
“Your records show the same borrowers availing loans by giving different ID proof. Now, what system are you following to prevent this?” asked Siddaramaiah.
When the MFIs stated that unlicensed companies were resorting to illegal means, the ministers present at the meeting countered the argument and claimed the ground reports otherwise.
“We need to take action against the MD of the erring company if we are to safeguard the interests of the poor people,” said Law Minister H.K. Patil.
