India’s Poor Still Rely on Informal Credit—Despite 96% Banking Access

A recent report reveals a critical disconnect in India’s financial inclusion story.

Even though 96% of Indians now have access to formal banking, economically weaker sections are still borrowing predominantly from informal channels—like local moneylenders, chit funds, and unregulated committees.

🔍 What the data shows:

Among lower-income groups, non-institutional credit has grown by 12%, outpacing the 10% growth in institutional credit.

Even middle-income groups show a similar trend.

Only in higher-income brackets (₹10 lakh+ annually) does institutional credit become more dominant—but even there, informal borrowing has not disappeared.

💡 Why does this happen despite formal access?

Cumbersome paperwork & red tape in banks

Collateral requirements most poor cannot meet

Low financial literacy

Faster disbursal & flexibility from informal lenders

Emergency needs that banks can’t process quickly

This raises a tough question: Is financial inclusion only about account access, or should we be measuring effective access to credit?

Policymakers, financial institutions, and fintech innovators must focus not just on reach, but on ease, education, and trust—especially for the underserved.

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