Loan book growth in Karnataka’s microfinance sector is strong and growing. | Photo credit: representative image
Microfinance lending in Karnataka, which is now around ₹ 58,000 crore with active loan accounts of 1.07 trillion, is showing signs of recovery, say industry sources.
While MFIs are witnessing a recovery from October 2025 onwards, industry sources said lending has been tight after the Reserve Bank of India (RBI) brought in a “rail”, tightening the lending process.
Top five districts
Currently, the top five districts in terms of number of accounts are Belagavi, Mysuru, Bengaluru (Rural and Urban), Tumakuru and Mandya, while Bengaluru (Rural and Urban), Belagavi, Mysuru, Tumakuru and Mandya lead in terms of portfolio size in the state, said a note by AKMI, which organized ‘The MicroSuft Bengalu2’ at Karna20 Bengaluru. Wednesday.
She said loan portfolio growth in the state’s microfinance sector is strong and growing. Operating profit before assets under management, which weakened in 2024-2026, is expected to improve in the 2027 financial year.
“Over the past three months, the recovery has been around 98% to 99%. The cost of credit to companies is expected to come down to around 4% in 2026-27,” Association of Karnataka Microfinance Institutions (AKMI) sources said.
The portfolio delinquency rate, which reached 8.59% by September 2025, fell to 5.6% by November, AKMI data showed.
Higher delinquency
However, due to several factors including floods/rains and misinformation about loan repayment, MFIs found recovery difficult and NPAs increased. The loan portfolio, which was around ₹70,000 crore before the industry got stressed due to higher delinquencies in 2025, is now around ₹58,000 crore.
However, the delinquency rate in Belagavi, Mandya, Davangere and Chamarajanagar districts continues to exceed 6%, while it is over 5% in Vijayanagara, Mysuru and Tumakuru districts, according to data released by AKMI.
In 10 districts of Karnataka, outstanding loans remained at ₹12,128 crore till the end of November 2025. The data also indicated that the Karnataka market saw a decline in asset quality.
‘disinformation campaign’
Sources said that following a “disinformation campaign” that the government would waive microfinance loans and in anticipation of legislation in this regard, many loan accounts have become delinquent, causing stress. AKMI sources said the confusion arose due to the activities of unlicensed moneylenders who used force on many occasions to obtain credit.
“The RBI-registered companies did not recover the money by force,” sources claimed.
Adding to the confusion were a flurry of reports of loan collection harassment, leading to nearly a dozen suicides. As many as 134 FIRs have been lodged across the state.
Published – 22 Jan 2026 22:44 IST
