While consumer income and confidence have been broadly affected by the pandemic, access to credit is helping Indian families meet their ongoing needs while online retail demand is growing rapidly as households shift their purchasing priorities.

Income, Confidence & Finances Under Pressure from Covid

As is the case for all nations globally, the economic impact of the pandemic in India has been widespread. Though only 14% of survey respondents said they were seeking loans specifically because of job losses, a staggering 80% of small business owners said their incomes have fallen during COVID. Much of India’s economy is driven by small business owners, with 30% of GDP derived from micro, small and medium enterprises. It is no surprise then, that given IMF estimates, India’s economy shrank by 10.3% during 2020, nearly a quarter of Home Credit survey respondents said they had suffered a job loss, while 35% have experienced salary cuts.

Based on these difficult circumstances, Home Credit’s survey found a delicate balance between optimism and pessimism going forward. While nearly 9 in 10 respondents said they believed the pandemic may subside by mid-2021, 80% of all those surveyed said they were still very concerned with losing their incomes.

Shifting Behavior Driving Online Demand, New Spending Priorities

As a result of the challenging environment in India for personal finances and safety, Home Credit’s survey results highlight the highly cautious approach many consumers have adopted in the country.

Two key changes in behavior appear to be having clear knock-on effects elsewhere. Virtually all those surveyed interviewed said they would both spend cautiously and refrain from going out of their home. Unsurprisingly as a possible result, 86% of respondents said they would refrain from travelling over the next 1-2 years – A key trend that may create further difficulties for both the domestic tourism and airline industry.

Likewise, consumers’ reduced desire to spend and leave home may be a key reason that almost every survey respondent noted they would refrain from eating out. Essential items such as groceries, apparel and small household goods saw less reduction than other purchases, such as apparel and eating out. Food and beverage services have clearly taken a major hit, being down a huge 67% compared to pre-Covid levels, although their situation is likely to improve once lockdowns ease and consumer confidence returns.

People are also thinking through long-term strategies, as they expect maintaining their spending on consumer durable (CD) goods, such as washers, TV sets and kitchen equipment. More than 1 in 5 respondents (22%) said they saw a possibility of buying CD goods in, once the situation returns to normal, compared with 13% in the pre-Covid times. This partly reflects a steep drop in spending on such items.

Forced into unprecedented circumstances, consumers are clearly reviewing and honing their spending habits to keep their households running. This may in fact drive innovation in the market responding to customer demand.

“Businesses and especially credit providers need to respond to these trends effectively and offer greater flexibility and choice than ever in meeting consumer demands,” says Ondrej Kubik, the Chief Executive Officer of Home Credit India. “Embracing hybrid models of brick-and-mortar stores in combination with online shopping, delivery and payment methods will be crucial in the future.”

Customers will likely maintain some of their new shopping habits as they seek to make the most of their time and money even after a return to normalcy. The survey indicates that Home Credit clients are not abandoning brick & mortar stores. This supports a positive outlook on Home Credit’s continued use of points of sale as the primary channel for customer acquisition.

Home Credit also found that cash is still the preferred and convenient mode of transacting in India, which is in line with POS purchases.  Approximately half of Home Credit customers use some forms of non-cash payments, including mobile app-based wallets. “Digital and mobile payments in India are growing, while digital wallets are also used to pay for goods in physical stores,” says Ondrej Kubik.

Consumer Credit Allowing Households to Meet Needs

To help their households meet ends meet, individuals often face difficulties with securing credit from traditional banks and must turn to moneylenders or other family members for support. The survey found that nearly half of respondents borrowed money primarily to help run their households to cover regular expenses. Over a quarter of respondents also cited repayment of monthly instalments from an earlier loan as the second biggest reason behind their decision to borrow more. More than a tenth of the respondents (14%) borrowed because they lost income due to unemployment.

Given the pressures facing Indian consumers, lenders must be clear on how loans are to be used while customers manage their finances. The need to borrow from friends forced 1 in 4 customers surveyed to rely on their social networks to cover household expenses and stay current on their monthly instalments. The research shows that they are planning to repay once they return to work.

As a result, there is a clear case for access to credit that can be provided responsibly to ensure financing can cover current needs and repayment can be conducted over a manageable timeline:

“If managed responsibly, credit from lenders such as Home Credit can assist impacted customers to rebuild their livelihoods which have been damaged by restrictions and other measures brought on by the Covid crisis,” says Ondrej Kubik, emphasising the important role credit providers play in helping people keep on top of their situations and not fall into severe hardship.