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Even though more Indians now have access to banks, a large number of low-income families still depend on informal loans, such as from moneylenders or friends, according to a report by Piramal Enterprises Ltd.

The study shows that while bank account ownership has improved, access to formal credit is still out of reach for many poor, rural, and self-employed Indians.

1) Informal borrowing rising among low-income families:

Families earning less than Rs 2 lakh per year increased informal loans by 5.8 per cent annually from FY19 to FY23, while their formal borrowing from banks and NBFCs fell by 4.2 per cent.

2) Large gap between informal and formal borrowing:

In 2021, informal borrowers were 2.63 times more than formal borrowers in India — a much bigger gap compared to Brazil (0.6x) and the US (0.27x).

3) COVID-19 worsened informal borrowing:

The pandemic led to job losses and reverse migration, pushing over 55 per cent of daily wage workers to rely on costly informal loans.

4) Regional differences in credit access:

States like Kerala, Karnataka, and Tamil Nadu have better formal credit access due to gold loans and fintech. Meanwhile, in Bihar, Jharkhand, and West Bengal, over 57 per cent of households still depend on informal loans.

5) NBFCs play a vital role but need support:

Non-Banking Financial Companies (NBFCs) and microfinance institutions serve many underserved areas but require policy help such as low-cost funding and liquidity support to improve last-mile credit delivery.

The report highlights the important role of Non-Banking Financial Companies (NBFCs) and microfinance institutions (MFIs) in serving areas where regular banks don’t reach.

“India’s financial inclusion story has delivered impressive gains in access, but the next chapter must focus on usage — specifically, timely, affordable, and appropriate credit,” said Debopam Chaudhuri, Chief Economist at Piramal Enterprises.

“For millions of informal workers, small entrepreneurs, and rural households, NBFCs are often the only channel for formal credit. Strengthening them is essential to bridging the credit gap,” he added.

Setting up a low-cost funding facility for NBFCs

Allowing some NBFCs to accept deposits

Giving liquidity support to top-tier NBFCs

Changing the SARFAESI Act to help lenders recover smaller loans more easily

While more than 77 per cent of adults now have bank accounts, the real challenge is making sure they can actually get loans when needed, the report argues.

Without timely and fair credit, poor families may continue to rely on costly and unsafe informal borrowing, which can lead to long-term financial stress.

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