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Informal credit market reaches $500 bn in India
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SME Times News Bureau | 08 Jul, 2021
The cash-driven informal credit and shared spending market among the
households in India is now a massive $500 billion opportunity which has a
vast digitisation potential, a new report showed on Thursday.
While India has a highly under-penetrated formal credit market, it has a very large informal credit market.
As
per estimates by the Bengaluru-based market research firm RedSeer, more
than $200 billion of loans are given informally to friends and family
in India each year.
Moreover, more than $300 billion of spending is shared with family/dependents.
Together, this creates a massive $500 billion 'shared spending/credit' market in the country.
"The
shared credit and spending market in India is not much talked about but
in many ways is the foundation of the economy. Traditionally, this
market has been very cash-driven and informal," said Mrigank Gutgutia,
Associate Partner at RedSeer.
However, with the rapid rise of
tech solutions and growing comfort with digital payments, "we believe
that the time is right for a digital sharing solution to emerge in the
market," he said in a statement.
New-age apps such as Xare and Fampay, among others, are at the forefront of bringing about this digitisation.
Xare
offers features like controlled sharing of un-used credit limit and
debit cards, all without the beneficiary needing their own bank account.
This allows for multiple use cases such as family finance management, lending and free instant remittances to name a few.
Another
is Fampay which provides pre-paid parental control cards for online and
offline transactions, thus allowing sharing of finances without needing
another bank account, the report noted.
"The digital solution
which could potential have an end-to-end platform for tracking and
managing all shared spends, can unlock massive efficiencies and drive
large gains in customer experience," said Gutgutia.
The major growth driver for the shared spending and credit market is mobile payments.
India
has now grown to become the second largest mobile payments market in
the world, with more than 250 million mobile payment users.
India's
mobile payment growth story is driven by UPI, which grew to have more
than $500 billion in disbursals in CY20, along with over 20 billion
processed transactions.
"With this ongoing revolution, India's
digitally-savvy user base has a chance to leapfrog the challenges of low
financial services penetration," the report noted.
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