Context: Despite nearly universal bank account penetration in India, fresh data (CMIE, Piramal Enterprises) show a sharp shift by poor households towards informal borrowing, due to limited access to formal credit channels.
About Informal Credit in India:
- What Is Informal Credit?
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- Credit from non-regulated entities like moneylenders, pawnshops, friends/family, chit funds.
- Typically lacks transparency, documentation, or consumer protection.
- Recent Trends and Shifts:
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- 96% of Indian households have at least one bank account (NFHS-5, 2021).
- Despite this, credit access remains skewed:
- 4.2% fall in formal credit among poor households (CMIE 2023).
- 5.8% rise in informal borrowing by those earning ₹1–2 lakh annually.
- 75% of rural adults still rely on informal credit in some form (NABARD Financial Inclusion Survey, 2019).
- ₹1.4 lakh crore was the estimated outstanding informal credit as of 2022 (CRISIL report).
- Implication:
- Banks and NBFCs reluctant to lend to high-risk low-income groups.
- Lack of documentation, collateral, or stable income proof blocks formal credit access.
- Credit demand–supply mismatch: Formal sector unable to match localised, immediate lending needs.
Relevance to UPSC Syllabus:
- GS Paper 3 – Indian Economy:
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- Topics: Financial Inclusion, Credit Delivery, Informal Sector, Rural Economy, NBFCs.
- GS Paper 2 – Welfare Schemes & Governance:
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- JAM trinity, PMJDY, DBT failures, Ethical lending practices.
- Essay & Ethics:
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- Themes: Economic Justice, Market Ethics, Trust Deficit, Financial Empowerment of the Poor.
