Lower-middle-class consumers are exhibiting a big shift in their borrowing patterns, transitioning from survival-driven borrowing to one fuelled by aspirations, entrepreneurship, and long-term investments, a new consumer study by Home Credit India showed.

This transformation reflects India’s evolving socio-economic landscape, where consumers are increasingly focused on improving their quality of life, empowered by greater access to credit and the growth of digital platforms, according to the study titled ‘How India Borrows’. This latest study is the sixth edition of Home Credit India’s annual consumer study.

Anish Tiwari, Chief Marketing Officer, Home Credit India said “Our latest How India Borrows 2024 study highlights a transformational shift in the borrowing behaviour among the lower-middle-class borrowers”.

It shows an increasing preference towards borrowing for consumer durables and small business ventures and consumer’s growing comfort with app-based banking, chatbots for customer service, WhatsApp payments, and digital literacy, according to Tiwari.

This reflects not only the evolving financial aspirations of borrowers to enhance their lifestyle and income opportunities, but also the growing role of digital platforms in making credit more accessible, he added.

The study also points out the strong affinity towards embedded finance and EMI-based financing and the importance of raising awareness around data privacy.

The ‘How India Borrows 2024’ study was conducted across 17 cities including Delhi-NCR, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad, Lucknow, Jaipur, Bhopal, Patna, Ranchi, Chandigarh, Ludhiana, Kochi, and Dehradun. 

The sample size consisted of about 2,500 borrowers in the 18-55 age group, with an average monthly income of ₹31,000.

Borrowing behaviour  

According to the study, most of the loans were taken to purchase consumer durables, followed by lending for business and house renovation. For example, borrowing for smartphones and home appliances increased from 1 per cent in 2020 to 37 per cent in 2024, indicating a continuous rise in borrowing for acquiring new technology and consumer durables. Borrowing for business expansion and start-ups jumped from 5 per cent in 2020 to 21 per cent in 2024, fuelling a sustained entrepreneurial momentum as individuals sought new income streams and opportunities, driven by pandemic-related economic shifts and strong government support for MSMEs through credit schemes and subsidies. 

Borrowing for home renovation/constructionsaw a modest rise, from 9 percent in 2022 to 15 percent in 2024, reflecting rising consumer interest in improving living conditions and enhancing home value, an optimistic economic outlook, and a focus on long-term investment in assets.

 The study further showed stable trends in education loans, which remained at 4 per cent from 2022 to 2024, underscoring the continued importance of children’s education. 

Borrowing for marriages gradually increased from 3 per cent in 2021 to 5 per cent in 2024, highlighting the continued cultural importance of fulfilling social commitments. 

Interestingly, borrowing for medical emergencies has dropped significantly, from 7 per cent in 2020 to 3 per cent in 2024, which could be attributed to improved financial planning, more affordable healthcare options, and better access to insurance.

Tech-savvy borrowers 

The study indicated that as consumers become more tech-savvy, their borrowing habits are also shifting towards app-based banking, with 65 per cent favouring it over browser-based banking (44 per cent) in 2024. 

This trend reflects the consumers’ growing preference for convenience, 24/7 financial access over traditional branch visits, and heightened digital literacy. 

App-based banking is most popular among Millennials (69 per cent), followed by Gen Z (65 per cent) and Gen X (58 per cent). Geographically, Metros lead with 71 per cent adoption, followed by Tier 2 cities at 69 per cent.

Browser-based banking, meanwhile, is used more by Gen Z and Millennials, at 47 per cent each, with Gen X having the lowest usage, at 35 per cent.

Online shopping has also shown a pattern of normalisation following the peak disruptions caused by the COVID-19 pandemic. In 2021, usage of online shopping hit 69 per cent due to health and safety concerns but dropped to 48 per cent in 2023 as restrictions eased. 

By 2024, it has slightly rebounded to 53 per cent, Women (60 per cent), Millennials (59 per cent), Gen Z (58 per cent), Metros and Tier 2 cities (56 per cent each) now drive this trend. 

Kolkata (71 per cent), Kochi (66 per cent), Hyderabad (64 per cent), Chennai (60 per cent) and Ranchi (59 per cent) are the top five cities in terms of online shoppers.

Chatbots gaining traction 

As per the study, Chatbots are gaining traction in customer service, with 27% of middle-class borrowers citing familiarity with the tool, up 4 per cent from last year. Awareness is stronger among Gen Z at 30 per cent. Additionally, 38 per cent of borrowers find chatbots easy to use for customer service, and 29 per cent trust the responses provided by them.

WhatsApp has also redefined the communication landscape, becoming a key channel in the lending space due to its user-friendly features and widespread adoption. 

It continues to gain prominence, with 59 per cent of borrowers receiving loan offers via WhatsApp. Trust in loan offers received on WhatsApp has also grown, rising from 24 per cent in 2023 to 26 per cent in 2024, reflecting increasing confidence in this digital platform. 

Loan offers received on WhatsApp are prevalent among Gen Z (61 per cent) and in Tier 1 cities (67 per cent).

Embedded finance and EMI cards 

Driven by their convenience in credit-related transactions, the adoption of innovative financial solutions, like embedded finance and EMI cards, is on the rise. There has been a nuanced shift in customer attitude towards embedded finance, with 43 per cent of customers expressing interest in these services. Almost 50 per cent of the borrowers in favour of embedded finance agree that embedded finance makes borrowing faster and e-commerce shopping simpler. 

For example, 64 per cent favoured major e-commerce platforms (like Amazon, Flipkart, Meesho, etc), followed by 21 per cent opting for travel apps (like MakeMyTrip, ClearTrip, etc), and 23 per cent using food delivery apps (like Zomato, Swiggy, etc).

According to the study, interest in embedded finance is notably higher among Gen Z (55 per cent) and Men (45 per cent), highlighting a demographic divide in engagement. 

Additionally, customers in Tier 1 cities, particularly in urban centers, such as Lucknow (68 per cent), Patna (53 per cent), Ahmedabad (52 per cent), Bhopal (52 per cent) and Ranchi (52 per cent), exhibited a greater propensity towards embedded finance.

EMI Cards remained the most popular credit tool among the lower-middle-class borrowers in India, with 43 per cent  citing them as their preferred option due to greater trust and faster disbursals. Other popular sources for obtaining loans include credit cards, preferred by 24 per cent of borrowers, and digital lending apps, preferred by 12 per cent.

Human connection 

A growing shift in loan acquisition patterns was noticed in the study, with 48% of borrowers opting to visit physical branches, underscoring the enduring preference for face-to-face interactions; 30 per cent of borrowers opting to complete applications online, reflecting the growing confidence in technology and convenience; and 22 per cent of borrowers relying on customer care representatives, highlighting the need for human intervention.

.Interestingly, the preference for digital loan channels for future credit needs has declined by 10 per cent from the previous year, signalling an increasing demand for more personalised, human-centred lending solutions. 

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