The study found that about 5% of consumers who started out with underserved credit became more active in credit within a two-year window.
The results of the study are being shared as part of TransUnion CIBIL’s ongoing commitment to improving financial inclusion and awareness across India. With around a quarter of India’s adult population under the age of 30, the new research is timely. This consumer group is most likely to apply for their very first loan or credit card from banks and lending institutions as their financial needs evolve.
“The Indian retail credit market is undergoing rapid change supported by the speed and scale of digital transformation. This transformation, coupled with India’s demographic dividend, has created unprecedented opportunities to drive growth and financial inclusion in the market,” said Rajesh Kumar, Managing Director and CEO of TransUnion CIBIL.
The study explores the characteristics and behaviors of credit-underserved consumers and their general feelings about credit, while offering key insights into these consumers’ credit journeys. Underserved consumers are those with minimal credit participation, limited to one type of credit product and no more than two open accounts of that type, and who have been active in the credit market for at least two years.
This study excludes newly acquired consumers—those who opened their first product within the last two years—from the underserved population, because many of these newly acquired consumers become more fully active in credit soon after opening their first product. The study aimed to understand consumers who remain underserved over a longer period of time.
Two cohorts of consumers were studied, each over a two-year period – the first during the pre-pandemic period starting from March 2018 to March 2020, and the second starting in June 2019 and studied during the pandemic period from June 2021, to determine if there have been any pandemic-related changes with consumer credit migration trends.
In addition to India, TransUnion’s global study examined similar dynamics of unserved and underserved consumers in several markets, including Canada, Colombia, Hong Kong, South Africa and the United States, in order to get a better idea of the global market size, needs and behaviors of underserved consumer segments.
Increased credit inclusion in India over a four-year period
The TransUnion CIBIL study showed that there has been a significant increase in the number of consumers served by credit, from 91 million in 2017 to 179 million in 2021, bringing estimated levels of credit served from 12% to 22% of the adult population. Lack of credit score and credit history for unserved consumers is a barrier to obtaining credit opportunities, as many lenders are reluctant to extend credit to consumers without a credit history or credit score. For these traditionally indeterminate consumers, they face a “chicken or egg” conundrum of how to get that first credit product when they have no credit history.
“Although India has made great strides in increasing levels of credit inclusion across the country in recent years, the current reality highlights the importance of incorporating enriched credit data into the credit ecosystem. loan, so that fewer consumers are left without credit.Once these consumers can be assessed by financial institutions, lenders can better determine where there might be new opportunities for growth and how they can further expand the inclusion of the credit,” Kumar said.
Recognizing this issue, TransUnion CIBIL last year launched its CreditVision® New-to-Credit (NTC) score to help foster greater credit inclusion by enabling banks and lending institutions to provide access to credit to consumers looking for loans for the first time.
Once underserved consumers are served with credit, they are likely to ask for more credit
Each year, a portion of the underserved consumer population—those with minimal credit activity—become more credit active by opening additional credit products, while many remain in this underserved segment. To better understand how underserved consumers became more active in credit, the study examined additional credit products opened by these consumers over the two-year period.
In TransUnion’s broader global study, it was found that in other emerging markets like Colombia and South Africa, the most common product types held by underserved consumers were microcredit, respectively (37 %) and clothing loans (59%). In India, agricultural and micro-finance loans, two-wheelers and consumer loans (personal loan, sustainable consumer loan or credit card) are the most preferred products to be opened by underserved consumers in terms of credit. The study also found that the performance of credit underserved consumers opening additional products and becoming served is not significantly different from credit established consumers.
Unserved or underserved? Survey Confirms Different Levels of Credit Satisfaction
TransUnion CIBIL also commissioned a survey in the region3 to gather the opinions of underserved and unserved consumers on the subject of credit. The results revealed consumer credit beliefs, attitudes, and experiences that may influence current and future behaviors.
Main results of the survey:
(a) 27% of underserved consumers responded that they did not have sufficient access to credit. This proportion is 58% for the unserved consumer segment.
(b) 38% of underserved consumers and 65% of unserved consumers responded that they were not satisfied with the current amount of credit.
(c) 39% of underserved consumers indicated that they did not need more credit, compared to 66% of unserved consumers. Both consumer segments indicated that the main reason was higher interest rates charged by financial institutions.
(d) 84% of underserved consumers and 35% of unserved consumers indicated that they plan to apply for new credit in the next six months. The two main credit products that these consumers consider applying for are credit cards and personal loans.
“Promoting financial inclusion begins with better understanding the different nuances between unserved, underserved, and underserved populations and what motivates them. For example, what drives unserved consumers to seek credit and why consumers underserved may need a different credit product can vary significantly.As lenders are better able to meet the unique needs of these consumer segments and educate these unserved and underserved segments on ways to build and improve their credit profiles, a greater percentage of consumers will actively engage in the credit system,” Kumar concluded.