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31 Jul 2015 11:19 AM, Insights Priya Saha

Consumer Pyramids shows higher recall of informal loans

AIDIS shows higher share of banks in household loans

Households often do not have a clear perception regarding their outstanding loans. This is particularly the case with loans taken from relatives and friends. Old and delinquent loans taken from such sources are often not remembered by a respondent. Also, such loans taken by one member may not be known to other members of the household and a respondent to the survey may not have full information regarding the informal loans taken by all members. There is therefore, a greater probability of a loan taken from an informal loan being under-reported in a households survey as against a loan from an institution such as a bank.

Consumer Pyramids shows that relatives and friends is the largest source of borrowing of households in India. Thirty-two per cent of the households that said that they did have an outstanding borrowing during September-December 2014, said that they had a loan outstanding from relatives and friends. This was a shade higher than banks, which showed up as a source of borrowing in only 30 per cent of the borrower households.

The Consumer Pyramids’ estimate of 32 per cent for relatives & friends being a source of loans is much higher than the June 2012 estimate of about 6.3 per cent given by All India Debt and Investment Survey (AIDIS) conducted by the National Sample Survey Organisation. The much larger capture of a source of borrowing that is more difficult to capture, in Consumer Pyramids compared to AIDIS is noteworthy. It is intriguing that according to AIDIS, only two per cent of the households in rural India who had outstanding loans had borrowed from relatives and friends.

According to AIDIS, 39 per cent of borrower-households in rural India borrow from money-lenders. This is much higher than Consumer Pyramids’s estimate of 20 per cent for the same and it partly compensates for the low estimate for relatives and friends.

Nevertheless, AIDIS underestimates the importance of the informal sources of borrowing used by households compared to Consumer Pyramids. The combined share of the informal (or non-institutional, non-regulated) sources of lending such as money-lenders and relatives & friends given by AIDIS at about 42 per cent is significantly lower than the 54 per cent estimate seen in Consumer Pyramids. Correspondingly, AIDIS overestimates the importance of banks. It estimates that 45 per cent of households who borrow, do so from banks. Consumer Pyramids places this figure at 30 per cent.