Microfinance lending in Karnataka is bouncing back. The total loan amount is about ₹58,000 crore with 1.07 crore active accounts. Recovery started in October 2025 but lending remains strict due to new RBI “guardrails.” The top five districts with most accounts are Belagavi, Mysuru, Bengaluru (Rural and Urban), Tumakuru, and Mandya. Bengaluru leads in portfolio size, followed by Belagavi and Mysuru. According to the Association of Karnataka Microfinance Institutions (AKMI), loan growth is strong. Profit margins, which declined in 2024-2026, are expected to improve in 2027. Recovery rates in the last three months reached 98%-99%. Credit cost is forecasted to drop to about 4% in 2026-2027. Delinquency dropped from 8.59% in September 2025 to 5.6% by November, though some districts like Belagavi and Mandya have delinquency rates above 6%. Floods, heavy rains, and misinformation about loan waivers caused stress and raised NPAs. The loan book was ₹70,000 crore before these issues. AKMI reports a misinformation campaign falsely claiming government loan waivers triggered delinquency. Loan confusion was worsened by unlicensed lenders reportedly using force, unlike RBI-registered firms which avoid coercion. Some harassment led to nearly a dozen suicides and 134 FIRs filed across Karnataka. Despite these challenges, microfinance in Karnataka shows signs of steady recovery under RBI’s tighter lending norms.