Bihar Assembly Enacts Bill to Regulate Microfinance Institutions

The Bihar Legislative Assembly has passed the Bihar Micro Finance Institutions (Regulation of Money Lending and Prevention of Coercive Action) Bill, 2026. This move aims to address the growing concerns regarding the practices of microfinance institutions and their impact on borrowers. The Bill was approved by a voice vote on March 14, 2026, as part of the ongoing budget session.

This new legislation creates a regulatory framework requiring all microfinance companies operating in Bihar to register at the state level, regardless of their existing licenses from the Reserve Bank of India (RBI). Presenting the Bill, Finance Minister Bijendra Prasad Yadav emphasized its goal of regulating the sector and curbing unethical recovery methods. He stated, “The objective is to ensure transparent lending operations with reasonable interest rates.”

The Bill will become law once it is also approved by the Bihar Legislative Council and receives consent from Governor Arif Mohammed Khan. It mandates that microfinance institutions must obtain prior approval from the state finance department before disbursing loans. Additionally, these institutions are required to register with the director of institutional finance after securing their RBI license. Authorities will have 90 days to verify documents and grant registration, with failure to register constituting a criminal offense.

Special courts will be established in each district to address cases involving borrowers who may have been driven to suicide due to excessive interest rates or aggressive recovery tactics. These courts will be overseen by first-class judicial magistrates, ensuring that victims receive appropriate legal attention.

Data from Sa-Dhan, an association representing impact finance institutions, highlights the scale of microfinance operations in Bihar. The state, home to over 130 million people, has more than 20.2 million loan accounts, the highest in India. The outstanding microfinance debt in Bihar is approximately ₹57,712 crore, with an average liability of ₹28,525 per borrower. Districts such as East Champaran, Muzaffarpur, and Samastipur are particularly vulnerable to the pressures of microfinance borrowing.

This legislative action coincides with increasing scrutiny of informal lending practices, especially in rural areas, where microloans are often touted as financial inclusion solutions but can entrap low-income families in cycles of debt.

In a related move to enhance the investment climate, Deputy Chief Minister Vijay Kumar Sinha announced plans to eliminate certain criminal provisions associated with procedural violations under various state laws. The Assembly also approved the “Bihar Jan Vishwas (Amendment of Provisions) Bill, 2026,” which aims to replace punitive measures with civil liabilities, administrative penalties, or monetary fines. Sinha explained that these changes align with the government’s vision of a “prosperous industry – empowered Bihar,” aimed at promoting industrial growth.

He noted that many state laws currently impose penal provisions for minor technical or procedural lapses, creating unnecessary burdens on entrepreneurs and citizens. The amendments are intended to streamline compliance and foster a more investment-friendly environment.

The Assembly also passed several other significant bills, including the Bihar State Madarsa Education Board (Amendment) Bill, 2026, the Bihar Private Professional Educational Institutions (Admission, Regulation and Fixation of Fee) Bill, 2026, and the Bihar Advocates Welfare Fund (Amendment) Act, 2026.

Through these legislative efforts, the Bihar government is taking steps to establish a more regulated financial environment while aiming to support economic growth and protect its citizens from exploitative lending practices.