Corporate Law
Money Lending Licence in Kerala: The Kerala Money-Lenders Act, 1958 Explained
Lending money at interest as a business in Kerala is regulated by the Kerala Money-Lenders Act, 1958 (KMLA) and the rules made under it. A licence is needed before the business begins, each place of business needs its own licence, and the Act controls the interest that can be charged, the accounts that must be kept and the way loans are recovered.
This article explains who needs a licence, the fee and security deposit, the procedure, the obligations after licensing, and the alternatives available when the business is planned on a larger scale.
Who needs a licence
The Act applies to a money-lender: a person whose main or subsidiary occupation is advancing and recovering loans, or accepting deposits in the course of that business. The licensing requirement applies to any person, firm, joint family or unincorporated association carrying on the business, and includes pawnbrokers who lend against gold and other articles.
Some lenders are outside the Act. These include banks, co-operative societies, statutory financial corporations, and advances made by Nidhis and chit funds to their members or subscribers. In Nedumpilli Finance Co. Ltd. v. State of Kerala (May 2022), the Supreme Court held that state money-lending laws do not apply to NBFCs registered with and regulated by the RBI.
Occasional personal loans are not a business. The Kerala High Court held in Manoj George v. State of Kerala (2024) that one or two instances of lending money are not enough to show that a person carries on money lending as a business. Regular lending to the public is a different matter and needs a licence.
Licence fee and security deposit
Section 4(2) of the Act prescribes a licence fee of ₹5,000. Fees are revised from time to time, so the amount currently payable should be confirmed with the State GST (Commercial Taxes) Department before remitting. In addition, the applicant deposits security with the Government. The security depends on the amount lent in a year:
| Amount lent in a year | Security deposit |
|---|---|
| Less than ₹1 lakh | ₹5,000 |
| ₹1 lakh to less than ₹5 lakh | ₹10,000 |
| ₹5 lakh to less than ₹10 lakh | ₹50,000 |
| ₹10 lakh to less than ₹25 lakh | ₹1,00,000 |
| ₹25 lakh to less than ₹50 lakh | ₹1,50,000 |
| ₹50 lakh and above | ₹2,00,000 |
The amount lent is measured by the maximum loan outstanding during the previous year. Where this cannot be worked out from the accounts, the amount invested in the business, including deposits, is taken. If the business grows into a higher slab, additional security must be furnished when called for; failing to do so within 30 days is an offence.
Validity, renewal and branches
- A licence is valid for the financial year in which it is granted and expires on 31 March. It must be renewed every year.
- A separate licence is required for each shop or place of business, even within the same town.
- A change of premises needs prior notice to the licensing authority and an endorsement on the licence.
- Where an application for renewal is made in time and no order of refusal is received before expiry, the licence continues until an order is communicated.
- A licence may be granted with retrospective effect where the applicant was prevented from applying in time for reasons beyond their control, on payment of a penalty.
Procedure for obtaining the licence
The Act is administered by the State Goods and Services Tax Department, Kerala (formerly the Commercial Taxes Department), with applications addressed to the Commissioner. The usual sequence is:
- Register on the Kerala taxes portal (keralataxes.gov.in) and complete the online application for a money-lending licence.
- Remit the licence fee and deposit the security amount through the Government treasury, under the head notified by the department.
- Upload or submit the supporting documents: identity and address proof, proof of the premises (ownership document or rent agreement with owner’s consent), photograph, and other certificates the department asks for, such as a nativity or conduct certificate.
- Submit the signed printout of the application with documents to the licensing office, where required.
- The department may verify the premises and the applicant’s details before issuing the licence.
The procedure, forms and list of documents are set by the department and are revised from time to time. For accurate and current requirements, contact the State GST (Commercial Taxes) Department, Kerala, or the licensing office concerned.
For a firm, the partnership deed and details of all partners are needed. The application should state each place of business for which a licence is sought.
A licence can be refused on grounds such as non-compliance with the Act, wilful default, fraud, certain criminal convictions, or an application made within six months of a previous cancellation. An appeal against refusal, cancellation or forfeiture lies within 30 days.
Interest that can be charged
Under section 7, a money-lender cannot charge interest above two per cent over the maximum rate charged by commercial banks on their loans; the Government may notify the rate. Charges other than those prescribed are not allowed, and the lender may not take gifts, commissions or other amounts beyond permitted interest and charges.
Interest above the permitted rate is not recoverable. The excess can be ordered forfeited, with a penalty of up to three times the excess. Separately, the Kerala Prohibition of Charging Exorbitant Interest Act, 2012 makes charging exorbitant interest an offence that is cognizable and non-bailable. Enforcement drives under that Act have made compliance on interest a real risk area for lenders in the state.
Obligations after licensing
- Accounts: a separate account for each loan, showing the date, principal, rate of interest and every payment received.
- Receipts and statements: a signed receipt for every payment, and a statement of account to the borrower on written request. Failure to give these within a month means no interest for the period of default, apart from a fine.
- Audit: the accounts must be audited every year by a chartered accountant and submitted as required.
- Returns: periodic returns to the Inspector appointed under the Act.
- Name board: the money-lender’s name with the words “money-lender” (or “pawnbroker”) displayed in English and Malayalam at the place of business.
- Recovery: molestation of a borrower, including intimidation, obstruction or interference with property or family, is an offence.
Additional rules for gold loans (pawnbrokers)
- A pawn ticket must be issued for every pledge, and a pledge book maintained.
- The borrower can redeem the pledge within one year, with a further grace period of seven days.
- Unredeemed pledges can be sold only by public auction, after notice.
- The pawnbroker is responsible for loss of pledged articles by theft or fire, and pledges cannot be accepted from minors or persons who are intoxicated.
Penalties
| Contravention | Consequence |
|---|---|
| Carrying on money-lending without a licence, or in breach of licence conditions | Imprisonment from three months up to three years, or fine up to ₹50,000, or both |
| Advancing less than the amount recorded, or concealing the real rate of interest | Imprisonment up to six months, or fine, or both; the licence can be cancelled |
| Molestation of a borrower for recovery | Imprisonment up to six months, or fine, or both |
| Charging interest above the permitted rate | Forfeiture of the excess and penalty up to three times the excess |
| Failure to furnish additional security when called for | Imprisonment up to six months, or fine, or both |
Offences of unlicensed lending and molestation are cognizable. Certain offences can be compounded.
Choosing the right structure for a lending business
A KMLA licence suits an individual or firm lending on a local scale. For a larger business, or one that plans to raise money from others, the structure needs more thought:
| Route | What it involves | Suited to |
|---|---|---|
| Money-lender licence under KMLA | Licence for each place of business, security deposit, interest cap, annual renewal | Individuals and firms lending their own funds locally, including gold loans |
| Nidhi company | A company lending only to, and accepting deposits only from, its members, under the Nidhi Rules | Mutual-benefit lending within a defined membership |
| NBFC registered with RBI | Certificate of registration from RBI, minimum net owned fund, RBI regulations on governance and fair practice | Lending as a principal business at scale, with external funding |
A company whose principal business is lending generally needs registration as an NBFC under the RBI Act; a KMLA licence does not substitute for that. Accepting deposits from the public is separately and strictly regulated. The choice should be made before the business starts, because changing structure later is costly. See registering a Nidhi company in Kerala and company registration in Kerala.
Frequently asked questions
Do I need a licence to lend money to friends or relatives?
Not for occasional personal loans. A licence is needed when lending is carried on as a business, that is, regularly and to the public.
Can a private limited company take a money-lending licence under KMLA?
The real question for a company is usually RBI registration. A company whose principal business is lending generally needs to be registered as an NBFC, and an NBFC registered with the RBI is outside the state Act. The facts of each case need to be examined before choosing between the two.
Is a separate licence needed for each branch?
Yes. Every shop or place of business needs its own licence.
When should the licence be renewed?
Every year, before it expires on 31 March. Lending after expiry without renewal is treated as lending without a licence.
Can a loan given without a licence be recovered?
Loans made while the licence was valid can be recovered even after it expires. Lending without any licence, however, exposes the lender to prosecution, and the lender’s position in recovery proceedings is weakened.
ചുരുക്കം (Summary in Malayalam)
കേരളത്തിൽ പലിശയ്ക്ക് പണം കൊടുക്കുന്നത് ഒരു ബിസിനസായി ചെയ്യുന്നവർക്ക് കേരള മണി ലെൻഡേഴ്സ് ആക്ട്, 1958 പ്രകാരം ലൈസൻസ് നിർബന്ധമാണ്. ഓരോ സ്ഥാപനത്തിനും ബ്രാഞ്ചിനും പ്രത്യേക ലൈസൻസ് വേണം. ഒരു വർഷം നൽകുന്ന വായ്പയുടെ തുക അനുസരിച്ച് ₹5,000 മുതൽ ₹2 ലക്ഷം വരെ സെക്യൂരിറ്റി കെട്ടിവയ്ക്കണം. ലൈസൻസ് ഓരോ സാമ്പത്തിക വർഷവും (മാർച്ച് 31-ന് മുൻപ്) പുതുക്കണം. വാണിജ്യ ബാങ്കുകൾ ഈടാക്കുന്ന പരമാവധി പലിശ നിരക്കിനേക്കാൾ 2% ൽ കൂടുതൽ പലിശ ഈടാക്കാൻ പാടില്ല. ലൈസൻസ് ഇല്ലാതെ പണമിടപാട് നടത്തുന്നത് മൂന്ന് വർഷം വരെ തടവും ₹50,000 വരെ പിഴയും ലഭിക്കാവുന്ന കുറ്റമാണ്.
This article gives a general overview of the Kerala Money-Lenders Act, 1958 and related law. Fees, procedures and notified rates are revised from time to time; for accurate and current information, contact the State GST (Commercial Taxes) Department, Kerala. The article is not advice on any particular case.
Please note. This article is provided for general information and is not professional advice or a solicitation of work. The law is stated as understood on the date shown above and may have changed since.