Loan book growth in Karnataka’s microfinance sector is robust and growing.
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Microfinance lending in Karnataka, which is now around ₹58,000 crore with about 1.07 crore active loan accounts, is showing signs of recovery, industry sources say.
While the MFIs have been witnessing recovery since October, 2025, the industry sources said that lending has been strict after the Reserve Bank of India (RBI) brought “guardrails”, tightening the lending process.
Top five districts
Currently, the top five districts by number of accounts are Belagavi, Mysuru, Bengaluru (Rural and Urban), Tumakuru, and Mandya, while in terms of portfolio size Bengaluru (Rural and Urban), Belagavi, Mysuru, Tumakuru and Mandya lead in the State, said a note from AKMI, which organised “The Microfinance Karnataka Summit 2026” in Bengaluru on Wednesday.
It said that loan book growth in the State’s microfinance sector is robust and growing. The pre-provision operating profit to assets under management, which had weakened in 2024-2026, is projected to improve in the 2027 financial year.
“In the last three months, the recovery has been around 98%-99%. The cost of credit to the companies is expected to decline to around 4% in 2026-2027,” Association of Karnataka Microfinance Institutions (AKMI) sources said.
The portfolio delinquency rate that had reached 8.59% by September 2025 has declined to 5.6% by November, the AKMI data showed.
Higher delinquency
However, owing to several factors including floods/ rainfall and misinformation over credit repayment, the MFIs had found recovery tough and NPAs had increased. The loan portfolio, which was around ₹70,000 crore before the industry came under stress owing to higher delinquency in 2025, is now around ₹58,000 crore.
However, the delinquency rate in Belagavi, Mandya, Davangere, and Chamarajanagar districts continue to be over 6%, while in Vijayanagara, Mysuru, and Tumakuru districts it is over 5%, according to data released by AKMI.
In 10 Karnataka districts, loan outstanding remained at ₹12,128 crore by the end of November 2025. The data also said that the Karnataka market has witnessed asset quality decline.
‘Misinformation campaign’
Sources said that after a “misinformation campaign” that the microfinance loans would be waived by the government and in anticipation of a legislation in this regard, many loan accounts became delinquent, causing stress. AKMI sources said that confusion arose owing to operation of unlicensed lenders, who on many occasions used force to recover credit.
“The RBI-registered companies did not recover money through force,” the sources claimed.
Adding to confusion were a large number of reports of harassment in loan recovery, leading to close to a dozen suicides. As many as 134 FIRs have been filed across the State.
Published – January 22, 2026 10:44 pm IST
