By Rakshith Ponnathpur, Dvara Research
Social norms and religious beliefs have an influence on all aspects of our lives, financial behaviour notwithstanding. This can lead to significant differences in the financial well-being of different communities: religious, regional, ethnic, racial, caste, cultural, etc. In addition to these endogenous factors, other exogenous factors such as the social, cultural, economic, and political capital held by the communities also contribute to these differences. While discussing the factors responsible for such differences observed is beyond the scope of our work, there is merit in checking whether and where these differences exist and to what extent, so that it can better inform such conversations.
In this post, we carry out such an exercise by analysing the financial portfolios of Indian households adhering to different religious faiths, using the nationally representative Consumer Pyramids Household Survey (CPHS) data from the Centre for Monitoring Indian Economy (CMIE). We use their income, expenditure, assets, liabilities and demographic data from the ‘August to December 2020’ wave to build a financial profile of households belonging to different faiths and analyse the differences between them. An important caveat is that when compared to Census 2011 figures, Hindu households are slightly overrepresented in the data while Christian and Muslim households are underrepresented. Our analysis has been at the population level (weighted), but there are no noticeable differences in observed patterns even at the sample level (unweighted).
India’s average monthly household income is around ₹17k, but Jain (₹33k) and Sikh (₹29k) households earn a significantly higher income on an average. Hindu and Muslim households are more or less equally distributed across income quintiles, while three-fourths of Jain households fall in the top two quintiles. Sikh households are the most unequal, with 30 per cent of households falling in the topmost and another 30 per cent in the bottommost quintile. While the head of household has completed graduation in around 10 per cent of households nationally, the figure is 40 per cent for Jain households.
When we check for indicators of financial access, we find that the ownership of bank accounts (99%) and mobile phones (87%) is high across households of all faiths, whereas that of health insurance (20%) is quite low. However, a higher share of Christian (47%) and Jain (37%) households own health insurance. The data also shows almost all households cutting across faiths own gold (99%) and/or real estate (99%).
Around half of Indian households own risk-free financial assets (49%), while less than a tenth of them own risky financial assets (6%) and informal financial assets (8%). A substantially higher than average share of Jain households holds both risk-free and risky assets, while a higher than average share of Christian and Buddhist households holds informal assets. The participation of Muslim households is below average across all three asset classes. More than three-fourths of Sikh households have fixed deposits, while more than half of Jain households own both fixed deposits and life insurance.
Turning our attention to debt, we find that around 40 per cent of Indian households are indebted, but only around 12 per cent of households report repaying loan EMIs. A majority of loans have been taken for consumption smoothing, followed far behind by business investment and debt repayment. A higher share of Buddhist households has borrowed more for consumption, Sikh households for business investment, and Christian households for debt repayment. Households pay around ₹2-3k as loan EMIs per month on average, with Jain households paying a substantially higher amount of ₹10k on average. There is a higher dependence on informal (30%) than formal (15%) credit. However, Christian and Sikh households are an exception, with a higher reliance on formal credit. Banks (8%) are the most popular formal source of credit, and shops (26%) are the most popular informal source. But, more than a fourth of Sikh households have loans from banks, while almost two-thirds of Buddhist households have taken credit from shops.
One of our hypotheses was about the low participation of Muslim households in credit instruments because of the religious sanction against interest-oriented credit, but they seem to be as indebted as any other community and spend as much on EMIs. But their formal credit take-up (10%) is well below the national average (15%), which may be because of access barriers due to low-income and education levels, as well as the lack of banking infrastructure that complies with their religious beliefs (Gupta, Maheshwari, & Chaturvedi, 2016).
We also check for the urban-rural divide and find that participation in savings/investment instruments is higher in urban areas and participation in debt is higher in rural areas. However, Christian households are an exception, with a higher share of rural households investing in savings instruments and a higher share of urban households being in debt.
Overall, we find that Jain and Sikh households are significantly better off than the national average in terms of their income and educational levels, as well as their financial portfolios. Christian households perform above average in terms of income and education, but around the average in terms of their financial portfolios. Muslim households are characterised by below-average income and education levels, and participation across all asset classes. All characteristics of Hindu households hover around the national average, owing to their large share in the population as well as their over-representation in the dataset.
For more detailed statistical findings and visualisations from the analysis, check this slide deck.
 For the sake of simplicity, we have considered the religious affiliation of the head of household as the religious affiliation of the entire household
 Households were classified into quintiles based on their monthly income; income range of each quintile can be seen in the above table
 This can be because of recall bias of respondents or some inconsistency in data collection. But it can also be because households may not have thought of informal loan (loans from moneylenders, employers, friends, relatives, shops, etc.) instalments as EMIs because of the flexible repayment arrangements.
 The Islamic financial system works on the principle of not charging interest (What is Islamic Banking and why does the RBI want it in India?)
 It may still be the case that the loans they have taken are Islamic law compliant since there are Islamic law compliant NBFCs and SHGs, and their informal loan arrangements may also have been Islamic law-compliant
Gupta, N., Maheshwari, D. K., & Chaturvedi, A. (2016). Islamic Banking in India: An Approach Towards the Growth and Potential. International Journal for Advanced Research and Innovative Ideas in Education, 485-495.
Cite this item
Ponnathpur, R. (2021). Analysing the Financial Portfolio of Indian Households Following Different Faiths. Retrieved from Dvara Research Blog.
Ponnathpur, Rakshith. 2021. “Analysing the Financial Portfolio of Indian Households Following Different Faiths.” Dvara Research Blog.
Ponnathpur, Rakshith. “Analysing the Financial Portfolio of Indian Households Following Different Faiths.” 2021. Dvara Research Blog.