The perils of the 'push' loan phenomenon

Rural households are increasingly depending on borrowed money to meet everyday consumption needs, a practice that is not sustainable in the long run

- TAMAL BANDYOPADHYAY

India's fast-moving consumer goods sector grew 5.7 per cent by value and 4.1 per cent by volume in the July-September quarter driven by rural demand, consumer intelligence firm NielsenIQ said in its quarterly update last week. Yet, many feel that the state of India's rural economy, particularly rural indebtedness, is a matter of concern. Some non-banking financial companies (NBFCs) are complicating the scene further by trying to fish in troubled waters.

The Reserve Bank of India (RBI) has taken note of the growing issue of "push" loans - loans that are aggressively marketed to individuals who may not fully grasp the long-term financial consequences. This is mostly happening in rural India, and a slew of factors is leading to unsustainable levels of debt.

One of the root causes is the lack of sufficient employment opportunities in rural India. Economic growth has not translated into adequate job creation, especially in non-farm sectors. Meanwhile, the ease of access to credit, combined with the proliferation of 24/7 delivery services, has fuelled higher consumption levels in rural pockets. This consumption is often beyond what individuals can afford, creating a significant gap between the growth in income and rising consumption needs. People are being lured into taking loans for goods and services that are not essential, further pushing them into debt.

As a result, rural households are increasingly depending on borrowed money to meet everyday consumption needs, a practice that is not sustainable in the long run. The problem is compounded by the fact that the income sources of the rural economy, which is largely dependent on agriculture, are unstable, affected by unpredictable monsoons, fluctuating commodity prices, and rising input costs. Instead of being mindful of this, some NBFCs are capitalising on this mismatch, providing loans for consumption, sometimes at usurious rates.