If you lend money against gold in Karnataka, you need a licence before your first loan — and if you hold the customer’s ornaments, you need the pawnbroker’s licence as well. This guide walks through the two Acts, the fees and deposit fixed in them, the online application, and the rules that changed in 2025.
Which law covers you
Two Karnataka Acts matter, and a gold-loan shop normally needs both licences:
- Karnataka Money-Lenders Act, 1961 (Act 12 of 1962) — covers lending money at interest. Any girvi or gold-loan business is money lending (section 5: no business without a licence).
- Karnataka Pawn Brokers Act, 1961 (Act 13 of 1962) — covers taking goods such as gold and silver as security. Holding pledged ornaments makes you a pawnbroker (section 3), and every shop needs its own licence.
Both are administered by the Department of Co-operation: the Registrar or Assistant Registrar of Co-operative Societies for your district acts as the licensing authority for money lenders and pawnbrokers. The department’s Sahakara Sindhu pages are the official source for forms and notices.
What changed in March 2025
The Karnataka Money Lenders (Amendment) Act, 2025 and the Karnataka Pawn Brokers (Amendment) Act, 2025 came into force on 25 March 2025, alongside the new Micro Loan and Small Loan (Prevention of Coercive Actions) Act. For a licensed shop the changes are:
- Licence term is two years, not five (section 10 of the Money-Lenders Act and section 3 of the Pawn Brokers Act).
- Lending or pawnbroking without a licence can now bring imprisonment of up to ten years and a fine of up to ₹5 lakh; the general penalty for breaking the Act rose to three years and ₹3 lakh, ten years and ₹5 lakh for a repeat.
- Coercive recovery is an offence: pressure, threats, following a borrower, visiting the house to intimidate, using outside agents, or seizing government-scheme documents. The Registrar can suspend or cancel the licence for it.
- An Ombudsperson and a grievance forum are to be set up for disputes between lenders and borrowers, and officers of several departments must report violations to the Registrar.
Fees and security deposit
The Acts fix the licence fee and a refundable security deposit. The deposit slab depends on the capital you had in the business in the previous year, and it carries no interest.
| Item | Amount fixed in the Acts |
|---|---|
| Licence fee — one place of business | ₹5,000 per licence |
| Licence fee — more than one place | ₹5,000 for the principal place + ₹2,500 for each other place |
| Security deposit — capital under ₹1 lakh | ₹5,000 |
| Security deposit — ₹1 lakh to ₹5 lakh | ₹10,000 |
| Security deposit — ₹5 lakh to ₹10 lakh | ₹25,000 |
| Security deposit — ₹10 lakh and above | ₹50,000 |
Both licences carry their own fee and deposit, so a shop holding both pays twice. The Act doubles the fee for an application filed late. The department’s own FAQ has quoted ₹2,500 for the pawnbroker’s licence, so take the challan amounts from the Registrar’s office when you apply rather than from any website, this one included.
Apply online on Seva Sindhu
The application is a Seva Sindhu service, “Application for Issue of License to Money Lender and Pawn Brokers”, with no service charge and a service standard of 30 days.
- Open the service page on Seva Sindhu, click Apply Online, and register with your mobile number if you have no login.
- Fill Form II for the money-lending licence and Form A for the pawnbroker’s licence. A partnership adds Form C with the partner list.
- Pay the licence fee and the security deposit and keep both challans — they are uploaded with the application.
- Upload the documents in the next section, tick the declaration, submit, and note the application number. Keep a set in duplicate for the office.
- The Registrar’s office verifies the application; expect a visit or a police verification in some districts. The licence names your firm, the premises and the licence number.
You can also file the same forms at the district office. Apply well before you plan to open, and before expiry when renewing.
Documents to keep ready
The Seva Sindhu checklist for the service is:
- The filled application — Form II (money lending) or Form A (pawnbroking)
- For a partnership: Form C with the list of partners and the registered partnership deed, in duplicate
- Character certificate of the proprietor or partners
- Proof of identity and proof of address
- Rental agreement for the premises (or proof of ownership)
- Licence-fee challan and security-deposit challan
- Four passport photographs
- An affidavit, with the documents above, in duplicate
Districts sometimes ask for PAN, the firm’s bank details or a capital declaration as well.
Interest you may charge
The State Government fixes the maximum rate by notification (section 28 of the Money-Lenders Act; section 6 of the Pawn Brokers Act, which otherwise sets 9% simple interest a year). The notification most often quoted by the department and by lawyers is dated 28 September 2003: 14% a year on secured loans — which is what a gold loan is — and 16% on unsecured loans. Ask the Registrar for the current notification before you print your rate on a pledge bill.
Two older rules still bite: a court will not award interest above the ceiling, and total interest can never exceed the principal (section 26). Charging above the ceiling is an offence under the Act and under the Karnataka Prohibition of Charging Exorbitant Interest Act, 2004.
What the licence obliges you to do
- Show the name board. Your name with the word “money-lender”, and its Kannada equivalent, must stay displayed over the shop (section 36). Quote the licence number on your documents.
- Keep the accounts the Act names. A cash book and ledger in Kannada or English, a statement of every loan given to the borrower within 30 days, a receipt for every payment, and a yearly statement of account (sections 20–21). A pawnbroker also keeps the pledge book, pawn tickets, sale book and redemption receipts (section 10 of the Pawn Brokers Act) and gives every pawner a pawn ticket. See the registers Karnataka expects you to keep.
- Follow the pledge rules. A pledge can be redeemed for one year plus 15 days of grace; after that it may only be sold by public auction, and the surplus belongs to the pawner for three years (sections 11–12). Our auction guide walks through the notices.
- Renew every two years, before expiry. A lapsed licence makes every later loan unlicensed lending.
- Recover politely. Notices and court are the only routes; the 2025 amendments make any coercive recovery an offence and a ground for cancelling the licence.
- Allow inspection. Authorised officers may call for your records and enter the premises (section 15).
Lending without a licence
An unlicensed lender cannot sue to recover a loan (section 11), and since March 2025 the offence carries up to ten years’ imprisonment and a fine of up to ₹5 lakh; unlicensed pawnbroking is punished the same way. Just as damaging for a family business: customers, banks and the police treat a licensed firm entirely differently. The licence is the foundation the whole business stands on.
How software fits in
The Acts were written for paper registers, and inspectors still ask for them in that shape. GoldKhata keeps the gold loan ledger, pledge register and delivery register as you work — every loan, interest receipt and release lands in the right register automatically, printed in the statutory column format when the inspector visits. Your licence number and terms sit on every pledge bill and notice it prints, and interest is counted at the rate you set, so a ceiling is easy to keep.
Sources
- Karnataka Money-Lenders Act, 1961 — text and the Money Lenders (Amendment) Bill, 2025
- Karnataka Pawn Brokers Act, 1961 and the Pawn Brokers (Amendment) Bill, 2025
- Seva Sindhu — Application for Issue of License to Money Lender and Pawn Brokers
- Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Act, 2025
Frequently asked questions
Do I need both the money lending and pawnbroker licences?
If you hold the customer's gold as security — which is what a girvi business is — yes: the Money-Lenders Act covers the lending, the Pawn Brokers Act covers holding pledged goods, and each has its own licence, fee and deposit. Most gold-loan firms hold both.
How long is the licence valid?
Two years, since the amendments of 25 March 2025; before that it was five. Renew before the expiry printed on the licence — a lapsed licence puts every later loan on the wrong side of the Act.
How much does the licence cost?
The Acts fix ₹5,000 per licence (₹2,500 for each additional place of business) plus a refundable security deposit of ₹5,000 to ₹50,000 depending on your capital. Two licences means two fees and two deposits. Confirm the challan amounts at the Registrar's office.
How long does the application take?
Seva Sindhu lists a service standard of 30 days. Verification visits and busy seasons can stretch it, so apply before you plan to open and renew well before expiry.
What interest can I charge on a gold loan?
Up to the ceiling notified by the government — 14% a year on secured loans under the notification most often quoted (28 September 2003) — and never more interest than the principal in total. Ask the Registrar for the current notification.
Does the 2025 microfinance law apply to my shop?
The Micro Loan and Small Loan (Prevention of Coercive Actions) Act, 2025 is aimed at unregistered lenders, but the same session amended the Money-Lenders and Pawn Brokers Acts, so a licensed shop is bound by the same ban on coercive recovery and the same penalties.
Can I run a gold loan business from home in Karnataka?
The licence is issued for specific premises, and the name board must be displayed there. Whether a residential address is acceptable is a district-level question — raise it with the Registrar before you apply.