Not banks or money lenders, this is how Indians borrowed during lockdown

NEW DELHI: The Covid-19 pandemic has brought about behavioural changes in people’s lives. Social distancing, work from home, online classes are some obvious examples of a new Covid normal.
However, it’s the economy and related activities which have been hit most by the coronavirus-induced lockdown and subsequent reopening in phased manners.
While forced migration and lost jobs were some of the visible impacts on the economy, several other aspects of economic activities are also seeing important changes, the magnitude of which is being assessed now only.
A survey undertaken by CMIE’s Consumer Pyramids and cited in a blog titled ‘Get by with a little help from my friends (and shopkeepers): Household borrowing in response to Covid-19′, revealed significant changes in the way people borrowed during the pandemic and the reasons for which they took money.
Borrower households
The number of borrower households, that had been on a steep rise since 2016, showed a drop to 45 per cent of the population between April and September 2020. The fall was greater in the urban regions than the rural.

A significant shift: From banks to family, friends
The data collected showed a significant shift in the source of borrowing by most people. Rather than approaching the banks and other financial institutions or intermediaries, people relied more on family and friends to fund their expenses.
The number of households who borrowed from friends and family increased from 14 per cent in 2019 to 21 per cent in the rural regions, and from 13 per cent to 27 per cent in the urban regions.
Simultaneously, there was a dip in borrowings from banks and money lenders which came down from 25.6 per cent to 15 per cent in urban areas and from 26.6 per cent to 21.9 per cent in rural areas.
Shops remain at the top
The top source of borrowings, however, remained the shops whose share grew from 52 per cent to 57.6 per cent in the rural areas in 1 year. However, the share of borrowings from shops fell slightly in the urban areas where it came down to 49.8 per cent in 2020 from 50.7 per cent in 2019.
In the post-demonetisation period (between 2016 and 2018), people in lower income groups relied more on borrowings from shops. This holds true for the current situation as well, specially in rural regions.

In other words, non-financial firms and cash flow management by retail supply chains seem to be more important than financial firms.
Need-driven borrowing
The blog also threw an interesting insight into the purpose of borrowing, which changed significantly from asset creation, like buying a house or buying consumer durables, to consumption and finance debt-repayment. In May-August 2019, 62 per cent of rural and 60 per cent of urban borrower households had borrowed for reasons of consumption. In May-August 2020, this figure had risen to 70 per cent and 66 per cent respectively.

The numbers for rolling over debt went from about 9 per cent in 2019 to 12 per cent in 2020 in urban regions, and from 7 per cent to 9 per cent in rural areas during the same period.
The fall in the number of borrower households seems to be driven by a fall in purchases involving large amounts like housing and durables that are usually made using bank loans. Many households had limited resources which could help them survive for a couple of weeks. Hence, consumption remained a top choice for people, especially in urban regions as the intensity of lockdown was more severe in urban areas than rural regions.
Based on a blog by Renuka Sane and Ajay Shah. Read the blog here

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