Haveri, Karnataka: The microfinance sector in Haveri district is grappling with a severe financial crisis as over 70,000 loan accounts have turned into non-performing assets (NPAs) as of March 31, 2025. The wave of defaults has triggered alarm among financial institutions, with some halting operations altogether.
A total of 26 microfinance institutions (MFIs) have collectively disbursed loans worth Rs 1,692 crore in the district. However, with repayment rates plummeting to just 30% in the last two months, the sector is under strain. The situation has been further exacerbated by allegations of coercive recovery practices and reports of borrower suicides, prompting the government to amend rules governing unregulated money lending. Several borrowers are now facing the long-term consequences of loan defaults, including a decline in their CIBIL credit scores — which will significantly affect their ability to access formal credit in the future. Meanwhile, responsible borrowers have found themselves caught in the crossfire, as many MFIs have suspended lending and collection activities due to the volatile environment.
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Speaking on the matter, C Kotragouda, Business Head of Navachetan Micro Finance Limited and President of the Haveri branch of the Association of Karnataka Micro Finance Institutions (AKMI), said the sector has been facing unprecedented challenges. “In the past two months, our recovery rates have dropped drastically. Some groups misled borrowers, discouraging them from repaying loans even when they were willing. While the government has amended rules to curb illegal money lending, many borrowers mistakenly assumed these changes applied to RBI-regulated MFIs as well,” Kotragouda explained. He added that institutions following Reserve Bank of India (RBI) guidelines should not be penalized for the actions of unregulated lenders. The presence of such lenders, often charging exorbitant interest rates, has created confusion among borrowers and damaged the reputation of legitimate MFIs.
To address misinformation and improve financial awareness, Navachetan Micro Finance Limited has launched a district-wide street theatre campaign aimed at educating people about the importance of financial discipline and the role of microfinance institutions in rural development. Nagendra Mali, founder of Navachetan Micro Finance Limited, highlighted the broader impact of the sector. “In Haveri alone, we’ve created over 1,100 jobs, and our operations across six states employ more than 4,000 people. Microfinance contributes around 2–3% to the national GDP and functions within strict RBI regulations,” he said.
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Mali emphasized that ongoing defaults not only jeopardize institutional stability but also damage borrowers’ financial futures. “We’ve temporarily stopped issuing loans and collecting repayments. Going forward, defaulters may be blacklisted from accessing credit from any formal financial institution. It’s crucial that both the government and public understand the long-term implications and support compliant institutions,” he urged.
As the crisis deepens, stakeholders are calling for clear communication, stronger regulatory differentiation between formal and informal lenders, and increased efforts to promote financial literacy among rural borrowers.