The regulators of the country and central banks have pushed the need for financial inclusion. The traditional financial products are that through which people can get access to modern financial services.
In India, there is a surge of rising middle-income and low-income earners who need proper financial products to make a living. A person has a desire to provide the best education to the children and provide the best for their family; however, low income creates distress in their economic condition.
These groups of people often remain underserved as traditional banks don’t recognize them as customers who can bring revenue to the banking business. However, the financial discipline of this working class shows that if loans are disbursed by checking data and bringing them under a credit opportunity, then they are the ones who pay their loans on time.
For example, a person who needs financial assistance for agriculture can get in touch with a loan agent who can guide an individual to get the loan amount at the required time. In this blog, we will look into some of the core elements that are essential to target the market of middle and low-income groups into the banking system.
Breaking the Spending and Saving Patterns
When we are discussing some of the facts of the low-income group, then, we need to check where they are spending. In the middle-income group, there is a demand for the expenditure of basic amenities like food and groceries, electricity, and all other necessary items for livelihood.
Therefore, the saving rate is low in this income standard, and it stands between 14% to 20%. There are certain expenditures in lifestyle expenses, such as clothing and schooling, which consist of educational fees and other expenses related to kids. Therefore, the savings rate gets reduced as people find that at the end of the month, they are left with a bare minimum amount for expenditure.
Now, since these Indians want their remaining saved money to be safe, therefore they prefer the risk-averse ways. For example, people tend to save in low-interest savings accounts, fixed deposits, or post office savings, which reduces the return. With the recent push in the government’s savings scheme, many people are getting the advantage of the Sukanya Samriddhi, NSC, or the Kisan Vikas Patra.
Banks and NBFCs can target this consumer section with micro-loans, which they need for running small businesses, and they can take advantage of these new savings funds and can hedge the loan amount against that. It not only helps the person in this critical time but also allows the individual to get the problem solved with that added loan amount.
Problem With the Income-Expenditure Mismatch
The basic problem with this income group is that in case of a big expenditure like a hospital expense or some other expenditure like buying a house, all can empty the savings of the individual. It leads to a perpetual debt trap where the household runs from running the house and needs to feed those who are dependent.
It forces the people to lend some money from their friends and family and that makes them liable to remain under an obligation. Early credit access in these situations can help a person to solve this problem. A person who is facing a medical bill issue, if they can get a loan against their FD then they don’t need to empty their savings for that medical expenses.
Rather than paying some interest on that amount, one can manage to repay that loan from their monthly expenditure, keeping that savings intact. Here, one can take the help of the finance DSA app, where the agents can analyze the problem and help the middle-income earner get a loan.
Why Savings is Reducing in These Households
There are primarily three concerns, which are diluting the savings of the middle income earner and below them. The first is medical emergencies, and that accounts for 30% of the savings dilution.
The second problem is the societal one and that of marriage. Here, a family spends a healthy amount of their savings or the entire one to make it big. It’s one of the reasons why, after years of savings, people start again with a zero plate.
The third is the problem with the child’s education and that takes another chunk of savings of a family.
All these are some of the factors that can be solved with correct banking products that will cater to the needs of this large population of the country.
