Digital consumer credit in India – time to take a close look
By Monami Dasgupta & Rakshith Ponnathpur, Dvara Research
This working paper was accepted to the 4th Annual Conference of India Gold Policy Centre at IIM Ahmedabad. The working paper can be accessed here.
Indian households, including and especially the low-income households, consider gold as a multi-purpose financial instrument because of its various utilities: to mobilise savings, as a hedge against inflation, and as a collateral for borrowing, apart from other social and cultural factors. Despite this huge demand for gold, there is still an incomplete market for products that offer gold-based micro-savings plans for low-income segments. Given the recent push towards digitalisation of financial services and financialisation of gold, we examine one such digital gold-based micro-savings product introduced by Dvara SmartGold to a predominantly rural and low-income customer base and explore how customers have invested in it during normal times, unexpected shocks like covid-19 and auspicious occasions like Akshaya Tritiya. Our outstanding observation has been the systematic and consistent manner in which customers have invested in the product, through all these planned and unplanned events. This points to the tremendous scope that exists for well-designed gold-based micro-savings products that match with the cash-flows of low-income households, to encourage them to accumulate savings in a systematic manner. We also find that demographic characteristics such as family size and number of female dependents, and financial characteristics such as jewellery owned and surplus managed, influence the decision of households to invest in such micro-savings products. Through our analysis of the product and its suitability for the low-income segment, we present a use case for the government and regulators to consider, so that they can incentivise the market to provide more such innovative micro-savings products that suit the unique needs of and constraints faced by low-income households. Lastly, our study shows there is potential for digital products in rural India, which is still by and large beyond the reach of digital financial products.
The full paper is available here.
