Gadag, Oct. 18 -- A promise of government-backed loans has allegedly turned into a financial nightmare for poor families in the Shirahatti town of the Gadag district. A firm operating under the name Lakshmi Enterprises is accused of collecting money from people by assuring them that subsidised loans would be arranged to help them start small businesses.

The firm reportedly promised loans ranging from Rs 5 lakh to Rs 25 lakh under government schemes. Applicants were encouraged to establish self-employment ventures such as tailoring units, roti-making facilities and cement brick manufacturing units. The assurances attracted people looking for financial support to build a more secure future for their families.

Applicants paid between Rs 10...