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No more forced recovery: Bihar’s new law limits borrowers to two MFIs and bans unauthorised loans
The law caps the number of MFIs that can be borrower can take loans from at a time to two.
Aimed at protecting borrowers from exploitative practices, the new law — the Bihar Micro Finance Institutions (Regulation of Money Lending and Prevention of Coercive Actions) Bill, 2026 — was passed in the Assembly Thursday and the Legislative Council Friday. (Source: File/ Enhanced by AI)
Mandatory state-level registration, a ban on unauthorised loans and coercive repayment measures, and maintaining effective interest rates — these are some of the key provisions of the Bihar government’s new law regulating microfinance institutions.
Aimed at protecting borrowers from exploitative practices, the new law — the Bihar Micro Finance Institutions (Regulation of Money Lending and Prevention of Coercive Actions) Bill, 2026 — was passed in the Assembly Thursday and the Legislative Council Friday.
This comes as complaints against coercive loan repayment measures mount in the state.
Under the new law, microfinance institutions (MFIs) can no longer give loans without the Bihar government’s permission. It also mandates registration with the director of Institutional Finance, making it non-obligatory for people to repay loans taken from unregistered MFIs.
MFIs also need the state finance department’s sanction for approving loans. The law also bans coercive recovery methods and mandates that MFIs maintain effective interest rates and written loan agreements in Hindi.
The law also caps the number of MFIs that can be borrower can take loans from at a time to two.
“Special courts will be set up in every district for usurious interest rates or coercive recovery practices,” a senior Bihar government official said.
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Significantly, Bihar has 600 MFI branches with a cumulative outstanding loan of Rs 57,712 crore, making it the largest microfinance market in India and catering primarily to rural parts of the state. Bihar MFI loan interest rates vary from 15 to 36 percent.
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