Context:
The Tamil Nadu Money Lending Entities (Prevention of Coercive Actions) Bill, 2025, aims to prevent coercive loan recovery practices and protect vulnerable borrowers, particularly farmers, women, and self-help groups.
- The Bill proposes:
- A three-year jail term for coercive loan recovery methods.
- Penalties for loan recovery agents who harass borrowers or their families.
- A prohibition on microfinance companies from forcibly collecting dues.
- A requirement for disputes to be resolved through district-level committees.
Microfinance Industry Response
- Concerns Over Impact: Microfinance players, including small finance banks and non-banking financial companies (NBFCs), are worried that the Bill’s stringent checks and balances could severely impact microlending operations.
- Senior executive at a small finance bank: “The environment is not conducive to work with so many checks and balances.”
- Risks: The microfinance sector operates with higher interest rates due to the high-risk nature of lending to low-income groups. Regular loan collection is essential to prevent non-performing assets (NPAs), but the new Bill could disrupt standard practices.
Key Microfinance Institutions in Tamil Nadu
- Muthoot Microfinance: Holds 25% of assets under management (AUM) in the state.
- CreditAccess Grameen: Holds 20% of AUM.
- Ujjivan Small Finance Bank: Holds 14% of AUM.
- Asirvad MFI: Holds 20% of AUM.
Comparative Action in Other States
- Karnataka: Introduced an ordinance in February with similar regulatory measures, including penalties of up to 10 years of imprisonment and ₹5 lakh fines for non-compliance.
Industry Challenges
- Microfinance players argue that regular visits to borrowers’ homes are crucial to managing risk and preventing loan defaults. However, with the proposed regulatory changes, they fear that such operations could be restricted, affecting their ability to manage loans effectively.
