Low income families depending on BNPL and credit cards, finds study
Though personal finance experts constantly advise their clients not to rely constantly on credit cards and caution against the false comforts of BNPL, a large number of Indians, especially in the lower end of the financial pyramid rely on these two instruments, a study by Think360.ai has found out.
Kolkata: The borrowing avenues seem to be getting redrawn in the country at the lower end of the financial pyramid. As much as 93% of salaried and 85% of self-employed individuals earning less than Rs 250,000 per year are relying on credit cards and BNPL (Buy Now Pay Later) on a regular basis, a study by Think360.ai has found. The study involved a sample of more than 20,000 salaried and self-employed individuals over a 12-month window. The study put the usage of BNPL at 18% for the self-employed and 15% for the salaried class.
The practice of taking more than one loan simultaneously is also rampant in this segment. As much as 74% of those earning below Rs 20,000 incur multiple debts to manage their regular needs and these often pave the way to EMI defaults. As a result, 35% of self-employed and 25% of salaried borrowers are categorised as high-risk borrowers.
Borrowing habits of the lower-income groups
"We are witnessing a fundamental transformation in how India's lower-income segments engage with credit. Credit cards and BNPL are no longer aspirational luxuries and have become financial necessities. Through alternate data, we can responsibly expand credit access, creating a more inclusive financial ecosystem for all." said Amit Das, Founder and CEO, Think360.ai.
A clear trend is emerging as more and more individuals are turning to short-term, digital-first credit products to manage cash flow and navigate irregular income.
Other findings of the study are:
More than 60% have started relying on personal and gold loans
While 75% of salaried individuals invest, the share is only 28% among those self-employed
About 71% of the salaried people buy insurance and the share is only 47% for the self-employed
UPI adoption is very high with 89% salaried and 92% self-employed individuals using it
"Self-employed individuals are more likely to hold multiple loan accounts and use a mix of secured and unsecured credit options," the study mentioned.
Growing influence of fintechs
Fintechs are powering India's digital lending revolution. In the small loan space they are the king. In FY23, fintechs disbursed more than Rs 292,000 crore of personal loans, which is a massive 76% of all new debt originations by volume, the study said. Fintechs are trawling data from bank transactions, GST filings and mobile usage to offer easily accessible personal loans which average as low as Rs 10,000. Those who don't have a documented credit track record are being benefitted.
Incidentally, the Reserve Bank of India has always expressed concern at the dangers that too easy access to unsecured credit poses too the economy. Think360.ai is a global full-stack data science and Al-focused firm of the CAMS group.