State leads India’s microfinance recovery with Rs 23,743 cr portfolio
As India’s microfinance sector stands at a critical inflection point, Karnataka has emerged as a beacon of resilience with research reports from Equifax India and India Ratings validating the state’s Rs 23,743 crore portfolio strength. This comes as Budget 2025’s doubling of credit guarantee limits to Rs 10 crore and evolving Q3 FY26 results signal a decisive shift from crisis to cautious optimism. The research organizations presented the Microfinance insights of Karnataka and outlook of Microfinance institutions FY27.
India Ratings’ landmark upgrade of the microfinance sector outlook from ‘deteriorating’ to ‘neutral’ marks a watershed moment. The agency projects credit costs plummeting from 9.5% (FY25) to 4.0% (FY27), while profitability (PAT-to-AUM) is expected to surge from negative 0.4% to positive 2.7% a remarkable 310 basis point swing. Karnataka’s performance validates this optimism. Equifax data shows the state’s 30+ delinquency improving to 5.60% in November 2025. Belagavi leads with Rs 1,788 crores, followed by Mysuru (Rs 1,707 cr) and Bengaluru Urban (Rs 1,536 cr). N Venkatesh, Chairman of Association of Karnataka Microfinance Institutions (AKMI), during the presentation stated, “While the intent of the new February 2025 regulations was clear and necessary, our member institutions rose to the occasion with decisive action and firm commitment to inclusive finance. We responded swiftly, calibrating loan book growth, provisioning prudently, and realigning field operations. At every step, we stayed committed to the millions who depend on us for their first and often only opportunity for financial empowerment. Our collective actions helped counter misinformation and re-establish the strong foundation of our microfinance sector, and we look forward to a vibrant 2026.”
With microfinance penetration at 30% of the addressable market and a national portfolio of Rs 3 lakh crore, significant growth potential remains. The combination of Karnataka’s demonstrated resilience, broader regulatory prudence, deleveraging progress, and this new budgetary support positions the microfinance sector to fully reclaim its vital role as an engine of inclusive economic growth—with Karnataka leading the charge.
Celebrating the visionaries who built the sector, the Association of Karnataka Microfinance Institutions honored three pioneering figures for their lifetime of service: Samit Ghosh, whose Ujjivan redefined urban microfinance; Uday Kumar Hebbar, the strategic force behind Credit Access Grameen; and Padmashri Aloysius Prakash Fernandes, the grassroots architect of MYRADA and Sangamithra.
