Bihar assembly passes bill to regulate microfinance cos; state-level registration made mandatory

Patna, Feb 26 (PTI) The Bihar assembly on Thursday passed a bill aimed at tightening oversight of microfinance institutions and curbing forced recovery practices.

The Bihar Micro Finance Institutions (Regulation of Money Lending and Prevention of Coercive Actions) Bill, 2026, mandates that lenders must obtain prior permission from the state Finance Department before disbursing loans. Even if licensed by the RBI, microfinance companies will be required to register at the state level.

Starting operations in the state without registration will constitute a criminal offence under the proposed law.

Under the proposed law, special courts will be set up in every district to hear cases involving individuals allegedly driven to suicide due to usury. These courts will be presided over by a first-class judicial magistrate.

The Director of Institutional Finance has been designated as the nodal officer under the proposed law. Microfinance firms must register with the director after securing an RBI licence, and the registration process will be completed within 90 days, following verification of documents.

Replying to the discussion on the bill, Finance Minister Bijendra Prasad Yadav said the legislation seeks to regulate microfinance institutions and small loan providers while curbing unethical recovery practices.

It would ensure transparent lending operations and reasonable interest rates, he added.

According to data from the self-regulatory organisation Sa-Dhan, Bihar has the highest number of microfinance loan accounts in the country at over 22 million. Borrowers in the state owe a total of Rs 57,712 crore to microfinance companies.

The districts of East Champaran, Muzaffarpur and Samastipur are among the most affected by microfinance-related indebtedness, the data showed. PTI PKD SOM