Watch Out: The Consumer Credit Tsunami From India

December 28, 2012 3:57 am

If you have ever been to India or you happen to live there, you will appreciate one fact: the preference of cash over credit for a very big proportion of transactions. Here are some statistics, to set the context right:

1. There are about 20 million credit cards in the country (Population: 1.2 billion). In comparison, there are about 300 million debit cards. (Source). People are spending more on credit cards, but the overall reach is very limited.

2. More importantly, India has some stunning demographic advantages: India has more than 50% of its population below the age of 25 and more than 65% below the age of 35. (Source).

3. India currently adds 40 million people to its middle class every year. Analysts such as the founder of “Forecasting International”, Marvin J. Cetron writes that an estimated 300 million Indians now belong to the middle class (Source) – that is the addressable population.

So that is the context: 20 million credit cards to an addressable population of 300 million, increasing at the rate of 40 million every year. There are two reasons for this disparity:

1. Across many sections in India, spending on credit is not viewed favorably, purely from a cultural standpoint. It is basically a discipline thing, particularly in the middle class, that makes ‘debt’ a dirty word – using a credit card is viewed as ‘spending money that you do not have’.

2. User Tracking and Credit History: India does not have an SSN equivalent, and while attempts are underway to get credit scores for people, these are in early stages.

And here is our hypothesis: Aadhar will address reason 2 (tracking) and the western influence that comes with globalization and media will address reason 1. Aadhar particularly, will solve a huge pain point for the banking system overall: uniquely identifying people, and tracking their transactions. For the first time, there will be a way to assign a functional credit score to individuals.

When both these reasons cease to exist, we expect a credit tsunami to originate in India. In big cities, the ‘credit’ change is already happening – and in big ways – credit card spends 30 times more than debit card (Source)

Watch out, there is a consumer credit tsunami originating in India in the next 3 years. And given the way the global economy is wired, you will feel the impact, regardless of where you are. When this ‘cash nation’ turns into a ‘credit card nation’ – when the Great Indian Middle Class starts swiping Visas and Mastercards – you will need to buy datacenters on Mars to handle the traffic.

[Note: For some reason, this article has been interpreted by many folks as ‘Credit Tsunami is good for India’ – whereas the intended messaging was just this: the sheer scale of credit that would originate from India in the next 3-4 years cannot be ignored.]

Update: We were right!

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10 Comments for “Watch Out: The Consumer Credit Tsunami From India”

  1. I don’t know how you claim the first issue to be a “problem” – to be free of debt and disciplined about expenses is not a problem.

    It would be great if writers are sensitive and sensible to these cultural things before writing reports such as these.

    You see these statistical reports and number games are written in a plain, straight-forward no-nonsense way but that doesn’t mean you treat the subject of credits and debt in the same manner.

    The Indian banking system didn’t tank as much as those in other countries because blokes here are quite careful and cautious about mortgages, loans and debts. That’s a good cultural aspect which, unfortunately due to materialism and Westernization of core philosophies and ideas, is getting corroded every day.

    You can’t be sensible, at least try to get your bearings right about what’s a problem and what’s not. Not spending the money you don’t have is not a problem. It’s how you live. Or at least, it’s how you try to live.

  2. junior

    Thanks for the comment. Obviously, the use of the word “problem” sends out a message that somehow we think credit is good for India. Thanks for pointing that out – we have tried to fix that in the article, and hopefully as a result, the messaging changes as well.

    The intended messaging was this: the sheer scale of credit that would originate from India in the next 3-4 years cannot be ignored.

  3. Alok

    Credit Card as a utility to carry and spend cash is a trend that may catch on. But I suspect in most cases people will be savvy enough to pay back in full every month end. So the effective long term expensive credit kind of indebtedness that you see in western countries will not be seen in India for some time (definitely not 3 years). So no “credit tsunami” for you. Just more credit card utility.

    And yes indebtedness is not a very socially acceptable state to be in here.

  4. Kumar

    Aadhar cards are *not* mandatory for all citizens. So point 2 still holds.

  5. Jose

    Agree with Chandrashekhar.
    I am not from India, I am from Spain, the problem for us was credit, not debit. Now Spain is in a very difficult situation because of those that spent more than what they had because the rest of us have to pay their debt.

    They created a real state bubble, made the houses unaffordable for people because of credit and now for adding insult to injury the state assumed the private debt so the banks don’t collapse, like in Ireland.

    Those that are in the credit tsunami business are in a criminal business. I could only hope that Indians do not enter the trap you want them to fall.

  6. pragnesh

    There is already body who track credit score called as cibil http://www.cibil.com/

  7. Thanks for your reply and I guess I was a little harsh in my comment. I apologize.

    The message is clear, yes. It’s a pity Indians are headed for the credit times 😉

  8. Thank you for your words.. it’s such a pathetic state of living..this spending money you don’t have or you *hope* to have in some time.

    If only more people hear you and really learn from others’ mistakes,

  9. Hari prasad

    I had no idea my credit was bad. The guys at Credit Sudhaar analysed my report. The process took some time but my credit was restored, enhanced and protected. I have no reason for complaints.

  10. Mehul Dave

    My application was rejected. Credit Sudhaar was my choice. Initially they were slow. But their counsellors were able to handle all my queries. I will give Credit Sudhaar a positive review.

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