BENGALURU: Law Minister HK Patil said in the Assembly on Monday that money lending or microfinance institutions have become means of converting black money into white, and this needs to be controlled. He was speaking before the assembly passed the Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Bill 2025.
Patil said that in Karnataka, over Rs 40,000 crore is disbursed and transacted and this amount has no accountability. “Where is this money coming from? This has not come from any government grants or banking institution loans. It’s black money. No other honest business can fetch this kind of profit. A man invests black money and in return gets 40-50% profit,” he said. “Money lenders not just become rich, they will be your competitors,” he told MLAs. Black money, big profits and political power will damage society’s health, he said.
The new law increases punishment and holds officials responsible for failing to take action, he said. Some lending agencies -- both registered and unregistered -- started collecting interest amounts and loans inhumanely. This led to people losing confidence. Some committed suicide, while others left their village, unable to face harassment from lenders. There is a need to bring fear among such money lenders who violate and damage human rights. At the same, there is a need to safeguard the interest of loan takers, he said.
Patil said, “We already have unregulated deposit schemes act 2019, Karnataka protection of interest of depositors act, Karnataka prohibition of charging exorbitant interest act and Karnataka Pawnbrokers act. But, we needed a comprehensive law. The existing laws stress on a penalty of Rs 1,000 to Rs 10,000 and one day to six months of imprisonment. One can get bail at the police station and come out, irrespective of the seriousness of their crime. These laws are not stringent. That is why the state government has increased the penalty to Rs 5 lakh and jail term to 10 years.”
Earlier, MLAs from different parties raised concern over illegal lending. Turuvekere MLA T Krishnappa said this has to be brought under the income tax ambit. He alleged many officials own such micro financing companies.