The Tamil Nadu government has notified a new legislation directed towards prevention of coercive recovery of micro-loans by money lending entities. The Tamil Nadu Money Lending Entities (Prevention of Coercive Actions) Act, 2025, which was introduced by TN Deputy CM in April, received the Governor’s assent on June 9, the official gazette shows.

The new law emerges as a statutory framework to protect economically weaker sections such as farmers, women and others from the hardship caused by coercive recovery methods used by money lending entities operating in Tamil Nadu such as micro-finance institutions, money-lending agencies and others.

As per the Act notified, it shall apply to all money lending entities functioning in Tamil Nadu except Banks, Non-Banking Financial Companies (NBFCs) registered with the Reserve Bank of India, Co-operative banks and Co-operative societies.

However, in a move that has caused confusion among the State’s lending institutions, especially MFIs, the provisions of the Act relating to coercive action against the borrower have been mentioned as applying to all including non-banking financial companies registered with the RBI and co-operative banks and societies.

‘Coercive action’

The Act defines micro-loan as one given to a household having an annual household income of upto ₹3 lakh. Section 20 of the Acr defines ‘coercive action’ as “obstructing or using violence to or insulting or intimidating the borrower or any of his family members; or persistently following the borrower or any of his family members from place to place, among similar actions.

Interestingly, among various regulations for money-lending entities, the Act says that “all communications with the borrower including the entries in the loan card shall also be in Tamil.”

Published on June 16, 2025