Informal Borrowing Rises Among India’s Poor Households
Why in the news
Data from CMIE and Piramal Enterprises show low-income households leaning on informal lenders, as accounts have not brought loans.
Key facts
| Measure | Figure |
|---|---|
| Rural adults using informal credit | 75% (NABARD, 2019) |
| Fall in formal credit, poor households | 4.2% (CMIE, 2023) |
| Rise in informal borrowing, ₹1-2 lakh earners | 5.8% |
| Informal credit market | ₹1.4 lakh crore (CRISIL, 2022) |
About informal credit
Loans from moneylenders, pawnshops, relatives, chit funds: no documentation or consumer protection, often costly.
Causes
- Access barriers: no collateral, income proof or credit history; red tape.
- Perceived risk: banks ration credit to low-income borrowers.
- Mismatch: the poor need small, quick, flexible loans.
Concerns
- Account ownership is not financial empowerment.
- Risk of a debt trap.
- Weaker trust in formal finance and digital lending.
Exam angle
- Account coverage source: NFHS-5.