Microfinance in India and Karnataka’s 2025 Ordinance
Why in the news
Karnataka’s new microfinance ordinance has sparked fears of another shock for a sector that has recovered from past crises.
Key facts
- Penalties: jail of 6 months to 10 years and fines up to ₹5 lakh; State may cancel registrations on borrower complaints.
- Banks and RBI-registered NBFCs are exempt.
- Andhra Pradesh (2010): MFIs collapsed, bad loans surged, bank funding shrank. Assam (2020): similar law, amended in 2023 to exempt regulated lenders.
Sector position
| Indicator | Figure |
|---|---|
| Overdue 30+ days | 6.92% |
| Overdue 90+ days | 3.9% |
| NBFC-MFIs / private banks / small finance banks | 39.1% / 32.5% / 16.15% |
Concerns
- Borrowers cannot tell legal MFIs from illegal moneylenders; the law misses shadow lenders.
- Bank funding may dry up and defaulters may turn to black-market loans.
Exam angle
- Andhra Pradesh 2010 is the classic crackdown case.