The Congress government in Karnataka, as it awaits Governor Thawarchand Gehlot’s assent to the ordinance meant to rein in unruly microfinance companies, flagged the union government’s policies for the rural distress, mounting debts, suicides, and people abandoning their homes and villages to escape harassment by loan recovery agents and money lenders.
After Chief Minister Siddaramaiah’s appeal to Finance Minister Nirmala Sitharaman not to slash the NABARD’s short-term agricultural credit limit to Karnataka, a delegation of Congress MPs including first-timers Priyanka Jarkiholi, Sagar Khandre, Sunil Bose, Shreyas Patel, and Prabha Mallikarjun gave a memorandum to Sitharaman drawing attention to the reduced credit limit impacting farmers in the state.
The reduced credit limit by the National Bank for Agriculture and Rural Development (NABARD) is a serious concern among farmers. The NABARD sanctioned only Rs 2,340 crore for FY2024-2025 against the Rs 5,600 crore sanctioned in 2023-2024.
"This is a steep cut of 58 per cent, which will impact the cost of finance for farmers unless the state steps in to provide additional interest subvention at the cost of its finances," said the memorandum urging Sitharaman to provide adequate soft agricultural loans.
Earlier, Virajpet MLA and CM’s legal advisor A.S. Ponnanna had attributed the microfinance menace to the economic policies of the Modi government.
"The NABARD grants have reduced from Rs 16.5 lakh crore to Rs 2.5 lakh crore. This has made it difficult for farmers to avail loans at an interest rate of 4 per cent. The Centre is encouraging these microfinance companies by making low-interest loans through NABARD unavailable to the farmers," said Ponnanna.
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 including 63 lakh unique individual borrowers. While the RBI allows MFIs to charge interest up to 17.07 per cent, the finance companies and money lenders have been charging from 20 per cent to 40 per cent in violation of the norms.
Meanwhile, the ordinance vetted by a team of bureaucrats and awaiting the Governor’s nod, proposes a maximum jail term of 10 years for erring microfinance companies and a fine of Rs 5 lakh. The microfinance institutions have been asked to register within 30 days of the Act being implemented, and also maintain transparency in loans disbursed and interest rates by updating data on their portals.
Siddaramaiah, who convened a meeting of MFIs said the ordinance would regulate MFIs and prohibit them from outsourcing loan recovery functions to goons to intimidate borrowers. It would also ban the recovery of loans after 5pm. The police have been directed to file suo motu cases of harassment.
Amid the uproar over the harassment by the MFIs, the Association of Karnataka Microfinance Institutions (AKMI) has expressed concern over microfinance customers showing “alacrity in learning about good credit discipline, regular repayment, and respect for lending institutions’ advice to borrow within their capacities.”
The Association stated that the MFIs were RBI-regulated entities and had helped people even during crises like demonetisation and Covid. But the sector was facing challenges due to unregistered and unregulated companies, they claimed. The Association also hailed the women borrowers, and self-help groups for their ‘credit discipline’ and ‘resilience’.
