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Drought Prompts Caution as Microfinance Risks Rise in Karnataka, Maharashtra
Large parts of Karnataka and Maharashtra are facing drought.
Drought can reduce crops, water supplies, livestock income and other rural earnings.
Because many microfinance borrowers depend on agriculture and related work, lenders are watching repayments carefully.
Industry groups have advised lenders to be cautious when approving new loans.
They also want lenders to prevent borrowers from taking on too much debt.
Many borrowers have other income sources, such as dairy, livestock and small shops.
ICRA said some lenders could still see more late repayments in areas heavily affected by drought.
At the same time, the wider microfinance sector has recently shown improving repayment and asset-quality trends.
Maharashtra declared drought in 265 of its 358 talukas, while Karnataka declared 177 taluks drought-affected.
Microfinance industry bodies advised lenders in the two states to monitor borrowers and make careful lending decisions.
Karnataka and Maharashtra had combined outstanding microfinance portfolios of ₹53,076 crore as of June 2026, over 16% of the industry total.
ICRA warned that concentrated lenders could face higher delinquencies, although the effects would vary by institution.
ICRA upgraded its sector outlook to stable as 90-plus-day delinquencies fell to 3.3% in June 2026 from 4.7% in FY25.
- Who
- Microfinance institutions, non-bank finance companies, industry bodies MFIN and Sa-Dhan, and rating agency ICRA are involved.
- What
- Lenders are being advised to exercise caution in Karnataka and Maharashtra because drought may weaken borrowers’ incomes and repayments.
- Where
- Karnataka and Maharashtra, particularly their officially drought-affected taluks and talukas.
- When
- The drought declarations and industry assessment were reported in the period through June 2026; ICRA’s outlook covered H1FY2027.
- Why
- Rainfall deficits have affected crops, water availability, livestock and rural livelihoods, while 67% of microfinance borrowers depend on agriculture and allied activities.
Regional Risk Concerns
Sector Resilience
Drought and repayments
Regional Risk Concerns
ICRA warned that lenders with substantial exposure to Maharashtra, Karnataka and the northeastern states could face increased delinquencies as farm cash flows weaken.
Sector Resilience
Sa-Dhan said most borrowers are not entirely dependent on agriculture and have diversified into dairy, livestock and small businesses such as shops.
Lending approach
Regional Risk Concerns
MFIN and Sa-Dhan advised institutions to monitor conditions closely and make careful loan-sanction decisions to avoid fresh stress.
Sector Resilience
ICRA said the broader sector outlook improved to stable because delinquencies declined, asset quality improved, credit costs fell and disbursements recovered.
Key facts
- Maharashtra drought coverage
- 265 of 358 talukas, or nearly 74% of the state, were declared drought-affected.
- Karnataka drought coverage
- 177 taluks were officially declared drought-affected.
- Karnataka microfinance portfolio
- Gross loan portfolio of ₹28,989 crore as of June 2026.
- Maharashtra microfinance portfolio
- Loan amount outstanding of ₹24,087 crore as of June 2026.
- Combined market share
- The two states represented more than 16% of the industry’s ₹3.28-lakh-crore outstanding portfolio.
- Sector delinquency
- The 90-plus-days-past-due ratio declined to 3.3% in June 2026 from 4.7% in FY25.
- Borrower safeguards
- Industry guardrails include a ₹2-lakh total indebtedness cap and a maximum of three microfinance lenders per borrower.
Quotes
Jiji Mammen
Executive director and chief executive of Sa-Dhan
“Maharashtra is an important microfinance market, with around 45.9 lakh unique borrowers and ₹24,087 crore in loan amount outstanding as of June 2026, placing it among the top five states nationally by loan amount outstanding.”
financialexpress.com
“We have already given some advisories to our member institutions to keep a watch on the situation and take careful decisions so it doesn’t get into any kind of stress.”
financialexpress.com
Sources
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