Conference Edition

Effect of Consumer Finance on

Financial Inclusion in India

Saon Ray
Smita Miglani
Sandeep Paul

www.icrier.org August 2018

Effect of Consumer Finance on
Financial Inclusion in India

Authors
Saon Ray
Smita Miglani
Sandeep Paul

August 2018

Conference Edition
 Contents

Overview....................................................................................... 7

The Case of India........................................................................... 7

Importance of Consumer Finance for Financial Inclusion................ 8

The Consumer Finance Sector........................................................ 9

Survey Findings............................................................................ 10

Concluding Remarks..................................................................... 17

References.................................................................................... 18
 Effect of Consumer Finance on
Financial Inclusion in India

List of Tables

Table 1: Sample Characteristics 11

Table 2: Distribution of Respondents Across the Cities 12

List of Figures

Figure 1: Male and Female Distribution in Five Cities 11

Figure 2: Income Distribution of Respondents in Five Cities 13

Figure 3: Employment Profile of Respondents 14

Figure 4: Status of Purchase of Consumer Durables - Cities 15

Figure 5: Consumer Durables Bought in Cities 15

Figure 6: Quantum of Consumer Loans - Cities 16

Figure 7: Source of All Loans - Cities 16

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Overview the revival of financial inclusion policies in recent
times, with the most important initiative being the
Pradhan Mantri Jan-Dhan Yojana (PMJDY), launched in
One of the most discussed issues of modern times,
2014. The programme complemented ongoing bank
financial inclusion or access to financial services, is
penetration policies and brought a sizable population
a major development goal for all nations across the
into the banking fold. While financial inclusion in
globe. A multidimensional concept, financial inclusion
India was led by commercial banks and Micro Finance
can be thought of as the proportion of individuals
Institutions (MFIs), Non Banking Financial Companies
and firms that use financial services in an economy
(NBFCs) have also been complementing the activities
(World Bank, 2014). The level of financial inclusion
of banks over the past few decades.
varies across the world, with the share of adults in
developed countries holding an account at a formal The present study looks at the case of the Indian
financial institution, more than twice the share in consumer finance sector. Consumer finance involves
developing countries (World Bank, 2014). While granting credit to consumers to enable them to
access is certainly the pillar of financial inclusion, possess goods for everyday use. Credit facilities in
use of financial services is also important. While India can be broadly classified into formal (banks,
access essentially refers to supply of services, use is NBFCs, MFIs) and informal (money lenders, friends,
determined by demand as well as supply (Demirgüç- relatives, etc.). While the Indian financial market
Kunt, et al., 2008). is changing rapidly, a large number of households
still rely on informal sources to finance unforeseen
expenses. Considering the size of the unbanked
The Case of India population and the challenge of ensuring quality
access to financial services, the case for analyzing the
Ensuring quality access to formal financial services role of NBFCs becomes important.
in a country of 1.3 billion people has always been a
challenge for the Indian government. Despite having Any enquiry into the credit market is incomplete
been a priority on the policy agenda for decades, without understanding the demand side of the
the goal of universal financial inclusion is yet to be problem. The Committee on Household Finance (RBI,
achieved. While much of the problem is due to lack of 2017a) notes that trends in financial behavior of
access and financial literacy, there is also evidence for households vary across income classes. For example,
voluntary exclusion in India. The 2011 census reported holding of financial assets is not very popular
that 59% of total Indian households availed banking even among high-income households, and there is
services, with 67.8% and 54.4% in urban and rural clear substitution between real estate and gold as
areas respectively. The more recent Global Findex households become richer. It was also observed that
Survey (Demirgüç-Kunt, et al., 2018) reported that in higher education is unambiguously associated with
the 15+ age group, 79.9% of the sample population a lower share of real estate, and higher shares of
in India had accounts with financial institutions in year both pensions and financial wealth, and thus greater
2017. This meant a strong growth compared to 53.1% exposure to formal financial markets. The report also
reported in the previous edition of the survey in 2014, looks at the sources of financial vulnerability and
and 35.2% in 2011. One important reason could be how households manage or deal with the risk (using

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 Effect of Consumer Finance on
Financial Inclusion in India

data from the Financial Inclusion Insights Survey). It either self-employed or runs small, informal businesses
notes that for the majority of the households (more (Rajeev and Vani, 2017).
than 60%), the major financial loss was due to the
In India, aided by impressive and consistent growths
loss of crops or livestock due to bad weather, medical
in national income, private consumption has been
emergencies involving hospitalization, and damage
expanding. Currently, private final consumption
to properties, farm equipment or other business
expenditure accounts for about 55% of national GDP
capital, due to a natural disaster. An enquiry into how
and has been growing consistently over the last few
households cope with such losses underlines the fact
years (CSO, 2017). Nevertheless, the finance for these
that India is still predominantly an informal economy.
expenses came largely out of savings or informal
While half of the population depends on help from
sources of credit. According to the All India Debt and
family, friends and moneylenders, only a quarter
Investment Survey (AIDIS) of NSSO 70th round, non-
are able to deal with emergency expenses using
institutional agencies account for a significant portion
accumulated wealth. Formal financial institutions are
of total loans to Indian households, with a share of
barely in the picture, implying that the current financial
69% in the rural and 58% in the urban areas (NSSO,
system fails to achieve one of its most important goals
2014). It was also noted that most of the debt is
that of helping households smoothen cash flows and
incurred for non-business purposes with shares in total
consumption patterns.
debt as high as 81.7% in urban areas, and 60% in
rural areas (NSSO, 2014).
Importance of The Indian financial market remains primarily informal

Consumer Finance for by nature, from both, the demand and supply sides.
Despite gains in financial inclusion, the integration
Financial Inclusion of the majority of people with the market is nil, or
far from satisfactory. The gains to be made in this
The Indian financial inclusion story so far was led by respect are huge, for both, industry and consumers.
commercial banks and MFIs. In India, NBFCs have It has been estimated that if households shift from
been competing with and complementing the activities non-institutional to institutional debt they can move
of banks over the past few decades. The Financial between 2.5 and 5.5 percentage points, respectively,
Stability Report of RBI (2014) notes that, “given the up the wealth distribution ladder (RBI, 2017a). It is in
relatively limited reach of the formal financial system, this context that consumer credit becomes important.
such entities may be playing an important role in Most consumer loans are unsecured without any
supporting the efforts towards financial inclusion.” By collateral for security to the lending institution and
extending credit to the unbanked, these entities are used mostly to finance personal expenses on articles
contributing immensely to financial inclusion. While such as vehicles, consumer durables, etc.
acknowledging the importance of access to credit
for productive purposes, a total integration with
financial market also means access to services such as
insurance and consumption loans. Financial inclusion
is necessary since credit is critical in a country like
India where a large percentage of the population is

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The Consumer Finance category of credit card loans is also growing notably,
used largely for consumption. A large bulk of credit
Sector is in the category, other personal loans, where the
purpose of loan is not tied to any particular product of
Consumer finance refers to activities involved in consumption.
granting credit to consumers to enable them to
While they are much smaller than the banking sector,
possess goods for everyday use. Most borrowing
the NBFCs are also actively trying to expand their
in developing economies occurs through informal
consumer-lending business. The growth in NBFC
sources, family or friends (World Bank, 2014).
credit to retail segments is evidence of this; the bulk
Retailing, an emerging branch of this sector, looks
of NBFC credit is apportioned to the industrial sector
at extending services not just to cover total financial
(about 60% in 2017), but retail credit (16.8% of total
planning, but also to cover lifestyle planning of
credit by NBFCs) was the fastest growing segment in
customers. A consumer loan is a type of loan given to
the FY 2016-17.
an individual on a non-secured basis for personal and
family expenses, vehicles, homes, etc. NBFCs are classified in terms of their liability
structures, type of activities and systemic importance
In banks, consumer lending is part of retail credit/ (SI). By liability, NBFCs are classified as deposit-
personal credit, a segment that has been gaining taking (NBFC-D) and non-deposit taking (NBFC-ND).
much traction in recent times. The share of personal By activity, there are 12 categories of NBFCs. At the
credit1 in gross credit extended by scheduled end of March 2017, 11522 NBFCs were registered
commercial banks has been steadily rising over the with the RBI. There are 239 companies registered with
last few years, too; it currently accounts for more than the RBI as NDSI (RBI, 2017b). Of these, 19 provide
24% of gross banking credit in the country with total consumer loans and two-wheeler loans. According to
outstanding loans crossing Rs. 19000 billion, as of Credit Suisse (2015), the consumer lending market in
March 2018. India is expected to be a US$ 1.2 trillion opportunity
Though housing loans and vehicle loans form the for organized lenders by 2020. The market is fast
biggest chunk of the personal/retail credit sector, other expanding with both scheduled commercial banks
loan products such as consumer durable loans, credit and non-banking finance companies aggressively
cards, education, individual advances, etc., are also expanding their portfolios. The emergence and rapid
growing impressively. Another rapidly growing sector spread of finance institutions dedicated to retail
is that of consumer durables even though their share finance, such as Tata Capital Financial Services Limited,
in total personal loans is miniscule (1.3% of total Bajaj Finserve, HDB Financial Services, etc., has given
personal credit). Faced with increasing competition much visibility of the sector, especially in urban areas.
from non-banking finance companies, many scheduled The retail segment has not only expanded in the last
banks are actively promoting this segment. The few years but was also the reason for the impressive

_______________________________________________________

1
The personal loans sector in scheduled commercial banks include loans for consumer durables, housing, advances against fixed deposits, advances to
individuals against share, bonds, etc., credit card outstanding, education loans, vehicle loans and other personal loans.

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 Effect of Consumer Finance on
Financial Inclusion in India

growth rates of credit of NBFCs. Interestingly, within is felt that NBFCs can propel India’s financial inclusion
the retail sector it was the consumer durables and plans to the next level. Caution with respect to non-
credit card receivables which registered impressive uniformity in regulation, pricing of credit and services,
growth. While the former grew by 83.9% in 2016- and unfair lending practices need to be observed.
17, the latter grew by 50%. Vehicle/ auto loans, the Self-regulation initiatives in this sector are in the early
largest component within the retail sector (41.5%), stages.
had in fact, regressed with a decline in actuals. While
the reason for decline of vehicle loans is largely
attributed to transient impact of demonetization Survey Findings
(RBI, 2017c), credit to consumer durables and credit
With a view to understanding the perceptions
card receivables seems to have largely remained
of people towards credits and loans, particularly
unaffected.
in the consumer finance segment, a survey was
NBFCs have also evolved in terms of their operations, undertaken by ICRIER in March and April, 2018. The
reach and profitability. They may provide end-to-end survey covered 844 respondents across five cities:
online personal loans solutions, right from obtaining Bangalore, Bhopal, Delhi, Kolkata, and Mumbai. The
information, applying for the loan, assistance with objective was to gauge the importance of consumer
eligibility criteria and documentation, approval finance in financial inclusion. Middle-income and
application and loan disbursal. NBFCs have specialized lower-income group respondents (defined as monthly
in different areas: financing commercial vehicles household income of Rs. 25000 and above and
(Shriram Transport Finance), offering loans against monthly household income of Rs. 25000 and below
gold (Manappuram Finance, Muthoot Finance, etc.), respectively) were included.
infrastructure financing (Srei infrastructure, IDFC, etc.),
Table 1 shows the characteristics of the sample. The
or consumer durables (Bajaj Finance, Capital First,
survey covered 568 males and 276 females. Hence
etc.). Borrowers prefer NBFCs over banks because
about one third of the respondents were women. The
decisions are made faster, services provided promptly
average income of the sample was Rs. 13443.6. The
and there is expertise in niche segments. NBFCs also
lowest monthly income was Rs. 1500 (US$ 22.50)
accept deposits from customers but unlike banks,
while the highest was Rs. 80000 (US$ 1199). It was
these are in form of insurance premiums and shares
noted that 179 respondents had no income – of
listed on stock markets or held privately. They are not
these 67 were students and 100 were homemakers.2
authorized to offer savings bank and other deposit
Figure 1 shows the city-wide distribution of the
schemes. With a wide geographical reach, product
respondents.
diversity and better understanding of local markets, it

_______________________________________________________

2
The respondents fell into four categories of monthly family income: < Rs.10000 (18%), 10000-25000 (41%), 25000-50000 (31%), and > 50000 (10%).

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 Table 1: Sample Characteristics

Observations % of Total Mean Standard Deviation Minimum Maximum

Gender 844 0.327 0.469

Age (Years) 844 35.150 10.591 18 70
Married (%) 844 72 0.295 0.479
Secondary education or higher (%) 844 50 3.316 1.391
Income (Rs.) 844 13443.60 13451.80 0 80000
Own house 844 65 0.706 0.456

Source: Authors’ compilation

Own
Note: thehouse
minimum and maximum of binary variables is not reported in the table.
844 65 0.706 0.456
Source: Authors’ compilation
Note: the minimum and maximum of binary variables is not reported in the table.

Figure 1: Male and female

Figuredistribution
1: Male andinFemale
the five cities
Distribution in Five Cities

89%
77%
67% 67%
55%
50% 50%
45%
33% 33%
23%
11%

Delhi Kolkata Mumbai Bangalore Bhopal Total

Male Female
Source: ICRIER survey

Source: ICRIER survey

The city-wide distribution of the respondents, along respondents. This is reported in two ways: first,
The city-wide distribution of the respondents, along with other
with other characteristics is presented in Table 2. the number of respondents in each city educated
characteristics is presented in
About 65% of the respondents owned a house, and
Table 2. About 65% of the respondents owned
upto high school level and below, and, number of
a
72%house, and 72%
of the respondents wereof the Approximately
married. respondents were married.
respondents educatedApproximately 50%
to senior secondary (Class 12)of
the
50% ofrespondents had
the respondents had secondary
secondary educationeducation
or levelor higher
or above. The degrees.
share of theseThe table
categories also
in each
reports theThe
higher degrees. number
table also of male
reports and female respondents,
the number city has been shownthe average
in Figure 2 which isage of the
discussed
respondents
of male and female and the education
respondents, the average agelevel of the
below.respondents. This profile
Data on the employment is reported
of the five in
two ways: first,
of the respondents the
and the number
education level ofoftherespondents
cities isin
alsoeach cityin Table
presented educated
2. upto high
school level and below, and, number of respondents educated to senior
secondary (Class 12) level or above. The share of these categories in each
city has been shown in Figure 2 which is discussed below. Data www.icrier.org│11
on the
employment profile of the five cities is also presented in Table 2.
 Effect of Consumer Finance on
Financial Inclusion in India

Table 2: Distribution of Respondents Across the Cities

Total
Bangalore Bhopal Delhi Kolkata Mumbai % of total
Respondents
No. respondents (male) 94 108 90 132 144 67

No. of respondents (female) 94 52 73 40 17 33

Total number of respondents 188 160 163 172 161

Average age of respondent 34 33 34 40 35

Education

Education level (number of respondents with

53 87 95 103 87 50
high school and below)

Education level (number of respondents with

135 75 68 69 74 50
senior secondary and above)

Employment

Employment type - daily wage (% of persons

engaged in daily wage by total number of 4 24 39 12 20 123
daily wagers)

Employment type - home maker (% of

persons engaged as home maker by total 47 47 47 47 47 106
number of home makers)

Employment type - salaried (% of persons

engaged in daily wage by total number of 54 5 23 17 1 157
salaried)

Employment type - self-employed (% of per-

sons engaged in daily wage by total number 16 13 29 17 24 190
of self-employed)

Employment type - students (% of persons

engaged in daily wage by total number of 8 23 10 29 30 218
students)

Financial inclusion

Number of persons with bank account 184 138 153 168 111 754

Number of persons with loans for consumer

132 24 29 61 8 254
durables

Number of persons with other loans 90 41 31 61 8 231

Persons without any loans 54 136 134 111 153 588

Family characteristics

Type of family – nuclear (%) 92 27 44 82 56 62

Total number of family members (average) 4 5 5 5 4 5

Source: Authors’ compilation

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About 89% of the respondents had a bank account. respondents in each of these categories were 19, 43,
Of the 90 persons who did not have an account, 69 26 and 11% respectively. Figure 2 below shows the
were males, while 21 were female. Also, 457 (54%) income distribution of the respondents by city.
respondents had bought a consumer durable in the
From Figure 3, presented below, we note the
past year. 254 respondents reported having taken a
employment profile of the respondents in the five
loan to buy a consumer durable in the past year. The
cities. There are five main categories: daily wage
source of funds to buy consumer durables, and mobile
worker, salaried, home maker, self employed and
phones in particular included (only 256 answered this
student. The share of each of the above categories is
question): banks, 6%; family and friends, 3%; EMIs
15, 13, 19, 23 and 26% respectively. The largest group
36%, while the bulk, 54%, used their own savings.
of respondents in Delhi, Mumbai, Kolkata and Bhopal
The family income of respondents can be divided
is self-employed, while the largest group in Bangalore
26 andcategories:
into four 11% respectively. The Figure 2 below shows the income distribution
a) < Rs.10000 b) 10000-25000,
is salaried. The second largest group in two cities,
of the respondents
c) 25000-50000, by city.
and d) > 50000. The percent of

Figure 2: Income distribution of respondents in five cities

Figure 2: Income Distribution

Monthly of Respondents
Household in Five Cities (Rs./month)
Income of Respondents
(INR/Month)

<10000 10000-25000 25000-50000 >50000

52%
49%
45%
43%
41%

33% 33%
30%
29%
27% 26%
24% 25% 25%
23%
18% 19%

13% 14% 14%

12%

2% 2% 1%

Delhi Kolkata Mumbai Bangalore Bhopal Total (N=844)

Source: ICRIER survey

Source: ICRIER survey

From Figures 3, presented below, we note the employment profile of the

respondents in the five cities. There are five main categories: daily wage
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worker, salaried, home maker, self employed and student. The share of each
of the above categories is 15, 13, 19, 23 and 26 respectively. The largest
 Effect of Consumer Finance on
Financial Inclusion in India

Figure 3: Employment profile of respondents

Figure 3: Employment Profile of Respondents
Occupation
Salaried Self Employed Daily wage worker Student Home maker Other

45%
41%
36%
34%
31% 32%
29%
28% 27%
26%
22%
19% 16% 19%
16% 16% 16% 16% 17% 18%
13% 12% 10%
9% 10% 9% 9%
4% 4% 5% 5%
3%
0% 1% 1% 0%

Delhi Kolkata Mumbai Bangalore Bhopal Total(N=844)

Source: ICRIER survey

Source: ICRIER survey

Key messages from the survey

Mumbai and Kolkata, is salaried; in Delhi, the second wheeler purchases were highest in Bangalore (23%)
The city-wise distribution of data (shown in Figure 4), shows that the highest
largest group is in the home maker category, while in followed by Delhi (17%).
number of respondents who (72%) had bought consumer durables in the last year
Bhopal it is daily wage worker. Some cities also had a
were from Bangalore followed by Kolkata (62%) One of the
andstudy’s
Delhikey (52%).
questions was whetherreported
Bhopal the
sixth category, ‘other’, which included casual workers,
the lowest, with just about one-third (38%),respondents
or people who had their own shops, were unemployed
having made were aware
anyofsuch
the availability
purchase. of loans for
consumer products such as mobile phones/ kitchen/
or retired persons. The share of this category in overall
home appliances, laptops or two-wheelers and three-
employment is 6%.
wheelers from NBFCs such as Bajaj Finserve, Capital
Key Messages from the Survey First, etc. More than half (56%) of the participants
responded in the affirmative, of which, 67% were
The city-wise distribution of data (shown in Figure 4),
in the middle-income group, while 44% were in
shows that the highest number of respondents who
the low-income group. At 74%, Bangalore had the
had bought consumer durables in the last year were
highest number of respondents, while only 31% of
from Bangalore (72%) followed by Kolkata (62%)
respondents in Bhopal were aware of the existence
and Delhi (52%). Bhopal reported the lowest, with
of loans through NBFCs. Bangalore also had the
just about one-third (38%), having made any such
highest proportion of respondents who had availed
purchase.
of loans: 70% (belonging to different income slabs)
City-wise analysis of items bought shown in Figure said that they had availed of such loans in different
5 suggests that mobile phone purchase were the slabs. The quantum of consumer loans taken by the
highest in Mumbai (78%) followed by Bhopal (68%); respondents is shown in Figure 6. In Mumbai, 95% of
kitchen/home appliances purchases were highest in the respondents reported that they had not taken any
Kolkata (58%) followed by Bangalore (48%); and 2-3 10 such loans in the last year.The participant were also

14│www.icrier.org
Figure 4: Status of Purchase of Consumer Durables - cities

72%

62%
54%
52%
44%
38%
Figure 4: Status of Purchase
Figure of Consumer
4: Status Durables
of Purchase - citiesDurables - Cities
of Consumer

72%

62%
54%
52%
Delhi (N= 163) Kolkata (N= 172) Mumbai44%
(N= 161) Bangalore (N= 188) Bhopal (N= 160) Total (N= 844)
38%

Source: ICRIER survey

City-wise analysis of items bought shown in Figure 5 suggests that mobile

phone purchase were the highest in Mumbai (78%) followed by Bhopal
(68%); kitchen/home appliances purchases were highest in Kolkata (58%)
Delhi (N= 163) Kolkata (N= 172) Mumbai (N= 161) Bangalore (N= 188) Bhopal (N= 160) Total (N= 844)
followed by Bangalore (48%); and 2-3 wheeler purchases were highest in
Bangalore
Source: ICRIER(23%)
survey followed by Delhi (17%).
Source: ICRIER survey
Figure 5: Items Bought in Cities
City-wise analysis of items
Figure bought Durables
5: Consumer shown in Figure
Bought 5 suggests that mobile
in Cities
phone purchase 78%
were the highest in Mumbai (78%) followed by Bhopal
(68%); kitchen/home 68%appliances purchases were highest in Kolkata (58%)
65%
followed by Bangalore (48%); and 58% 2-3 wheeler purchases were highest in
52%
Bangalore (23%) followed by Delhi (17%). 48%
44%

Figure 5: Items Bought in Cities

27%
20% 23%
17%
78% 8% 6% 8%
4%
65% 68%
Mobile Phone Home
58% Appliances 2/3 Wheeler vehicle
52%
48%
44% Delhi Kolkata Mumbai Bangalore Bhopal
Source: ICRIER survey
27%
Source: ICRIER survey 20% 23%
17%
asked about the overall debt of the households. When Bangalore, 8%the corresponding figure was 88%. Out
8% of
6% 4%
other forms of outstanding debt is considered, it was 11 the respondents in Kolkata, 54% reported that they
found that much of the debt originated from formal took most of their loans from informal sources. The
Mobile Phone Home Appliances 2/3 Wheeler vehicle
sources. In Bhopal, 98% of participants reported that source of the loans is reported in Figure 7.
Delhi while
they had taken loans from formal sources Kolkata
for Mumbai Bangalore Bhopal

Source: ICRIER survey www.icrier.org│15

 Effect of Consumer Finance on
Financial Inclusion in India

Figure 6: Quantum of Consumer Loans - Cities

Quantum of consumer loans- cities
None <10000 10,000- 25000 25000- 50000 >50000

95%

85%
82%

70%
64%

30% 28%

19%
12% 13%
10% 10% 9% 11% 10%
8%
5%
2% 1% 5% 2% 4%
5% 4% 6% 6%
2% 1% 1% 1%

Delhi Kolkata Mumbai Bangalore Bhopal Total

Source: ICRIER survey

Source: ICRIER survey

The respondents were also asked whether they had had any difficulty getting
such loans and overall,Figure
74% Source of all loans- Cities
7: said
Sourcethat
of Allthere
Loans had been difficulties in getting
- Cities
bank loans. The corresponding Source percentage
of allInformal
Formal of respondents who had faced
loans- Cities
Both
difficulties in taking loans from NBFCs
Formal Informal
wasBothsignificantly lower (8%). When
asked about the kind of difficulties they faced, no clear factor emerged, for
98%
either kind of institution. Overall, almost three-fourths of the respondents
88%
cited a lack of clarity in procedures, in both kinds of98% institution. Overall, 29%
88%
respondents said the other difficulty they faced was with 71% extensive
63%
paperwork that banks required; 57% just 8% of respondent reported difficulties
54% 71%
with
63% loans from NBFCs. Some respondents also mentioned unhelpful
57%
behaviour by shop 54%owners39%and delays in getting the amount released as
33%
difficulties
25%faced by them; respondents
39% did not face such issues with banks.
33%
13% 15% 14%
12% 25%
4% 5% 7%
2% 0% 15% 14%
Figure 12% 13% cities
7: Source of all loans:
4% 5% 7%
Delhi Kolkata Mumbai Bangalore 2% 0%
Bhopal Total

Delhi
Source: ICRIER survey Kolkata Mumbai Bangalore Bhopal Total
Source: ICRIER survey
Source: ICRIER survey
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With respect to mode of repayment of bank loans, 95% of the respondents
said they
With paid
respect off loans
to mode through bank
of repayment account
of bank loans,debits.
95% ofBanks used cash
the respondents
The respondents were also asked whether they had
had any difficulty getting such loans and overall, 74% Concluding Remarks
said that there had been difficulties in getting bank
Financial inclusion has emerged as one of the most
loans. The corresponding percentage of respondents
critical development challenge. For a country like
who had faced difficulties in taking loans from NBFCs
India, with a large unbanked population this is
was significantly lower (8%). When asked about the
particularly so. Schemes like the PMJDY, Aadhar etc.,
kind of difficulties they faced, no clear factor emerged,
are greatly aiding this goal of the government. While
for either kind of institution. Overall, almost three-
there have been many recent efforts towards financial
fourths of the respondents cited a lack of clarity in
inclusion by the RBI as well as the Government of
procedures, in both kinds of institution. Overall, 29%
India, there are many challenges still: it is in this
respondents said the other difficulty they faced was
context that NBFCs can play an important part. This
with extensive paperwork that banks required; just
opens up an unprecedented opportunity for all players
8% of respondent reported difficulties with loans from
in the financial market including consumer finance
NBFCs. Some respondents also mentioned unhelpful
companies.
behaviour by shop owners and delays in getting
the amount released as difficulties faced by them; While the market for consumer goods is constantly
respondents did not face such issues with banks. evolving and expanding into hitherto untapped
sections of society, there are also a large number
With respect to mode of repayment of loans, 95%
people getting integrated into the formal financial
of the respondents said they paid off loans through
market. With the increased use of technology and
bank account debits. Banks used by agents and by
digital intervention, not only are new players entering
merchants at the point of sale were also widely used.
the market, but existing players are also diversifying
When respondents were asked whether they were
their products. This intensifies the competition as the
open to taking consumer finance from NBFCs in the
same segment is being targeted by many players.
near future, 76% of the respondents said they were
willing. In Bhopal, 98% of the respondents said that Personal loans have grown at twice the rate of growth
they were likely to avail consumer finances in the near in personal disposable income, leading to a steady
future. Nine out of every ten respondents in Kolkata rise in household indebtedness. At the end of March
said that they would take loans, while in Mumbai, 2016, Indians owed Rs 25.2 lakh crores to banks and
almost half of the respondents gave a negative reply. the listed NBFCs, up 65% in the past three years.
Outstanding personal loans are now equivalent to
The respondents were asked where they had heard
18.3% of India’s national disposable income, up
about bank loans and loans from NBFCs. Overall,
from 15% in FY2014 and a 10-year-low of 14.1% in
81% of the respondents got their information about
FY2012. According to the RBI, in the past three years,
the bank from their retailers, while the corresponding
personal loans or household debts have grown at a
figure was 73% for NBFCs suggesting the important
CAGR of 18% against 10.2% CAGR in India’s gross
role played by publicity at the point of purchase (POP).
national disposable income (at current prices) during
Another 19% and 23% people got information about
the period. The RBI has raised concerns about the
banks and NBFCs, respectively, from their relatives or
growing share of final consumption expenditure
friends.
(private and government) in India’s incremental GDP
growth, in its Annual Report for FY2017 (RBI, 2017d).

www.icrier.org│17
 Effect of Consumer Finance on
Financial Inclusion in India

This may result in higher household indebtedness Demirgüç-Kunt, A.; Beck, T.; and Honohan, P. (2008).
that may threaten the sustainability of India’s growth Finance for all? : policies and pitfalls in expanding
model in the longer term. access. A World Bank policy research report.
Washington DC; World Bank.
From the consumer survey presented in the report,
which captures only a very small slice of the NSSO, National Sample Survey Office (2014). Key
populace, several important messages emerge. Indicators of Debt and Investment in India, NSS
Firstly, there are many important differences among 70th Round, 2013. National Sample Survey Office,
the cities. Indeed, there is appetite for more credit Ministry of Statistics & Programme Implementation,
in cities which are relatively more underserved. Government of India, New Delhi.
The other important finding is that for most people
Rajeev, M., and Vani, B. P. (2017). Financial Access of
taking a loan, publicity at the point of sales, helps in
the Urban Poor in India: A Story of Exclusion. Springer.
decision-making.
RBI, Reserve Bank of India (2014). Financial Stability
For the poor, managing money is central to their life,
Report, Issue No 9, June 2014. Reserve Bank of India,
more than any other group (Collins et al., 2009). For
Government of India, Mumbai. Accessed from
such people particularly, clarity of procedures was
https://rbidocs.rbi.org.in/rdocs/PublicationReport/
a daunting challenge. This brings to the fore, the
Pdfs/0FSR26062014F.pdf, on 22nd July 2018.
importance of financial literacy. This is the key to
achieving greater financial inclusion in the country. RBI, Reserve Bank of India (2017a). Indian Household
Finance, Report of the Household Finance Committee.

References Accessed from https://rbi.org.in/Scripts/BS_PressRe-

leaseDisplay.aspx?prid=41471, on 22nd July 2018.
Collins, D.; Morduch, J.; Rutherford, S.; and Ruthven,
RBI, Reserve Bank of India (2017b). List of NDSI NBFC
O. (2009). Portfolios of the Poor: How the world’s Poor
Registered with RBI as on April 30, 2017. Accessed
Live on $2 a Day. Princeton University Press, New
from https://www.rbi.org.in/scripts/bs_nbfclist.aspx,
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on August 05, 2017.
Credit Suisse (2015). India financials sector, sector
RBI, Reserve Bank of India (2017c). Report on Trend
forecast- retail loans: A second coming. Asia Pacific/
and Progress of Banking In India 2016-17. Reserve
India Equity Research.
Bank of India, Government of India, Mumbai. https://
CSO, Central Statistics Office (2017).National Accounts rbidocs.rbi.org.in/rdocs/Publications/PDFs/0RT-
Statistics 2017. Central Statistics Office, Ministry of P20161778B7539711F14E088A31D52351BF6440.PDF
Statistics & Programme Implementation, Government
RBI, Reserve Bank of India (2017d). Annual Report
of India, New Delhi.
2016-17. Reserve Bank of India, Government of
Demirgüç-Kunt, A., Klapper, L.; Singer, D.; Ansar, S.; India, Mumbai. Accessed from https://rbidocs.rbi.
and Hess, J. (2018). The Global Findex Database 2017: org.in/rdocs/AnnualReport/PDFs/RBIAR201617_
Measuring Financial Inclusion and the Fintech Revolu- FE1DA2F97D61249B1B21C4EA66250841F.PDF on
tion. Washington, DC: World Bank. doi:10.1596/978- September 23, 2017.
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Report 2014: Financial Inclusion. Washington, DC.

18│www.icrier.org
 89% 76%

Of the respondents are Are open to consumer

having Bank account finance

54% 38%

Have bought any consumer Of the respondents use

product in the last one year financial apps

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