Bihar Microfinance Bill Unlikely to Impact RBI-Regulated Lenders

The recently passed Bihar Micro Finance Institutions (Regulation of Money Lending and Prevention of Coercive Actions) Bill, 2026, is unlikely to materially affect lenders regulated by the Reserve Bank of India (RBI), according to industry executives. The Microfinance Institutions Network (MFIN), the sector’s self-regulatory body, clarified that RBI-licensed entities are exempt from state-level registration requirements, as they already operate under stringent borrower-protection norms. These include RBI guidelines on responsible conduct, MFIN’s Code of Conduct, and strict guardrails mandating transparent lending and non-coercive recovery practices.

Bihar accounts for about 15% of the microfinance industry’s total exposure, the highest share among states, followed by Karnataka and Tamil Nadu. Although the new law broadly covers individuals, firms, companies, digital lending platforms, and other entities offering small loans within the state, regulated lenders say the operational provisions do not apply to them. Fusion Finance CEO Sanjay Garyali stated that the only relevant clause for regulated institutions concerns the prohibition of coercive recovery methods—an area already governed by existing regulations—resulting in “zero impact” on their operations.

Despite reassurances, shares of several microfinance-focused lenders declined after the Bill’s passage, with notable drops in Fusion Finance, CreditAccess Grameen, Utkarsh Small Finance Bank, Ujjivan Small Finance Bank, and L&T Finance. Industry leaders, however, highlighted Bihar’s strong repayment culture, noting collection efficiencies exceeding 99.5% across major players. Following a funding slowdown due to tighter norms, the sector has shown signs of recovery in the October–December quarter of FY26, with improved disbursements and reduced loan slippages.

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