PMJDY: Traditionally cash-dominated rural India and smaller towns witness rise in credit-driven consumption

IndiaSmaller cities and traditionally cash-dominated rural areas are seeing an increase in credit-driven consumptiondriven by deeper penetration of consumer finance and openings of new bank accounts under the government’s Pradhan Mantri Jan Dhan Yojana (PMJDY).

For example, the purchase of two-wheelers through credit in rural India, at 62%, has surpassed urban areas (58%) so far this fiscal year. Also in electronics and smartphones, financing currently represents between 30% and 40% of all purchases in rural marketsmuch higher than the 20% two years ago, according to industry executives.

Financial inclusion Attracting customers in rural areas through the PMJDY scheme has helped increase the penetration of financial companies, large retail chains and e-commerce marketplaces like Amazon and Flipkart, driving credit-based consumption.

In two-wheelers, greater access to finance is allowing consumers to upgrade, according to the country’s largest two-wheeler manufacturers. motocorp hero and Honda Motorcycle & Scooter India (HMSI). Sales of more expensive 125cc motorcycles and scooters have risen 55% so far this fiscal year, compared with a marginal 2% rise in sales of entry-level two-wheelers, helping boost industry volumes by 16%, exceeding initial estimates of 10-12%.

At HMSI, rural markets have seen a steeper rise in financial penetration to 51% in FY25, from 40% in FY21, largely driven by an improvement. digital banking infrastructure, faster loan approvals and attractive financing options, making two-wheeler ownership more accessible, Yogesh Mathur, director (sales and marketing), told ET.

“While household savings are under pressure, funding has allowed consumers to upgrade to models that offer more features and performance. The change in customer preferences, especially in rural areas, is evident with a growing inclination towards 125 cc models. The price gap between entry-level models and the 125cc segment has narrowed, driving demand for the latter,” said Mathur.Rival. motocorp hero also considers that financial penetration is crucial to boost two wheeler sales in rural markets. To this end, the company launched Hero Digi Fin, a loan aggregation platform aimed at reducing approval time and accelerating loan sanctions. “So, as Digi Fin is adopted, what it will do is make financing more accessible to a broader set of people who right now probably can’t access it. Most of our financiers agree with this. And this has huge potential,” Niranjan Gupta. the CEO recently told analysts.

Today, more than 80% of adults have a formal financial account, up from about 50% in 2011, according to government data. So far, banks have opened around 530 million PMJDY accounts with a total balance of Rs 2.31 lakh crore, a more than three-fold increase from 147 million accounts with deposits of Rs 15.67 billion in March 2015.

Up to 66.6% of these accounts are located in rural and semi-urban areas, establishing a framework for financial companies to easily extend credit to buyers in these markets. This, in turn, confirmed the brands, has led to the growth of sales of premium products in rural India.

In consumer durables, white goods maker Haier India president Satish NS said finance accounts for 60% of all purchases in urban India, compared to 40% in rural areas.

“(But) financial companies are venturing deeper into the market, especially in tier 3 and 4 cities. This may increase the cost of sale as there is a 5-6% interest cost that we absorb to provide EMI at no cost to consumers, but it is developing the markets for us and driving demand,” he said.

Godrej Appliances Business Director Kamal Nandi confirmed that the sales growth rate is faster in smaller cities and rural areas of India due to the entry of financial companies. “In fact, this summer, most air conditioning purchases in smaller cities were made with financing. The growth of premium products and big-ticket items in smaller cities is 5-7 percentage points higher than in urban areas due to finances,” he said.

Looking ahead, the festive season looks promising for two-wheeler and home appliance brands thanks to easy availability of credit, abundant rainfall, improving infrastructure and increase in disposable income.