India's informal credit market reaches $500 bn, suggests report

Bengaluru: A new report on Thursday showed that the cash-driven informal credit and shared spending market among the households is now a massive $500 billion opportunity in India.

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.

While India has a highly under-penetrated formal credit market, it has a very large informal credit market. More than $300 billion of spending is shared with family/dependents together creating 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 allowing for multiple use cases such as family finance management, lending and free instant remittances to name a few.

Another app 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 potentially have an end-to-end platform for tracking and managing all shared spends, can unlock massive efficiencies and drive large gains in customer experience," Gutgutia added.

Meanwhile, India has now grown to become the second-largest mobile payments market in the world, with more than 250 million mobile payment users.

"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.