Bihar Assembly Passes Bill To Regulate Microfinance Institutions And Curb Their Coercive Loan Recovery Practices
The Bill intends to address the mounting concerns over increasing indebtedness among the people and the harassment of borrowers.
By Dev Raj
Published : February 26, 2026 at 8:35 PM IST
Patna: Cracking the whip on mushrooming microfinance institutions in the state and their coercive loan recovery practices, the government tabled the Bihar Micro Finance Institutions (Regulation of Money Lending and Prevention of Coercive Action) Bill, 2026, in the Legislative Assembly on Thursday.
The Bill intends to address the mounting concerns over increasing indebtedness among the people and the harassment of borrowers. The Assembly passed it by a voice vote on the penultimate day of the ongoing budget session.
The Bill creates a regulatory framework that mandates state-level registration for all microfinance companies operating in Bihar, even if they are already licensed and approved by the Reserve Bank of India (RBI).
Presenting the Bill in the Assembly, Finance Minister Bijendra Prasad Yadav said that it was intended to regulate microfinance institutions and small lenders while curbing unethical recovery methods.
“The objective is to ensure transparent lending operations with reasonable interest rates,” Yadav told the lawmakers present in the Lower House of the state legislature.
The Bill will become an Act after it is also passed by the Bihar Legislative Council, obtains the consent of Governor Arif Mohammed Khan, and is notified in the state gazette.
As per its provisions, microfinance institutions must obtain prior approval from the state finance department before disbursing loans in Bihar. They would be required to register with the director of institutional finance after securing the license from the RBI.
The authorities will have 90 days to complete document verification and grant registration to such institutions. Operating without state registration will constitute a criminal offence.
The proposed law also envisages special courts in every district to hear cases involving victims or borrowers allegedly driven to suicide due to usurious interest rates or coercive recovery practices. First-class judicial magistrates would preside over such courts.
Data from Sa-Dhan, an association of impact finance institutions and an RBI-appointed self-regulatory organisation (SRO) for microfinance institutions, has underscored the huge scale of lending operations in Bihar.
The state, with a population of over 13 crore, has over 2.02 crore loan accounts – the highest in the country. The outstanding microfinance debt in Bihar is around Rs 57,712 crore, with an average liability of Rs 28,525 per borrower.
East Champaran, Muzaffarpur and Samastipur are among the districts most heavily exposed to microfinance borrowing.
The legislation comes amid growing political scrutiny of informal lenders and reports of aggressive recovery tactics in rural areas, where microloans are often marketed as tools of financial inclusion but throw low-income households or families into vicious debt cycles.
In a separate move aimed at improving the investment climate, deputy chief minister Vijay Kumar Sinha announced that the government would remove certain criminal and imprisonment provisions tied to procedural and technical violations under various state laws.
The Assembly also passed the “Bihar Jan Vishwas (Amendment of Provisions) Bill, 2026,” which seeks to convert several punitive clauses into civil liabilities, administrative penalties or monetary fines.
Sinha said the changes align with the government’s ‘seven resolves for a developed Bihar – III’, especially its third resolve that is ‘prosperous industry – empowered Bihar’, which aims to stimulate industrial growth.
He noted that numerous state laws currently contain penal provisions for minor technical or procedural lapses, creating what he described as an unnecessary compliance burden on entrepreneurs and ordinary citizens. The amendment, he said, is intended to correct such inconsistencies and foster a more investment-friendly environment.
The Assembly also passed the Bihar State Madarsa Education Board (Amendment) Bill, 2026; the Bihar Private Professional Educational Institutions (Admission, Regulation and Fixation of Fee) Bill, 2026; the Bihar Advocates Welfare Fund (Amendment) Act, 2026; and the Bihar Secretariat Service (Amendment) Bill, 2026.
