Moneymanagement’s Weblog

Traditions win hands down in financial services

Posted in banking by moneymanagement on June 25, 2008

Banks in India may be sitting on 144-million odd customer base, but it seems they have a way to go in order to catch up with the country’s age old traditional and informal lending sources. Out of the 71-million individuals, across urban & rural India, who took any loan in the last two years (yes, including big ticket one for buying a house) one in three tapped their friends & relatives, another third opted for moneylenders, with the banks being a poor third choice, with under a fifth (19.3%) banking on it for loans. In other words, the bulk of lending still takes place outside the formal financial sector.
Also bypassing the banking system are increasing popular social lending sites like Zopa and Prosper. The basic idea with social lending is that when you need money, others will pool their funds together and lend them to you at x% interest rate. Prosper uses your credit score to determine your risk rate and then based on that risk rate you bid for the loan with your terms. What makes Zopa and Prosper popular is the “social” aspect; that is you can post your story about why you need the money. has an interesting post on Social Lending voted as the future of finance by the banking industry

Only 105-million odd individual earners in the country (32.8% of the total paid workforce) own at least one life insurance policy. The total number of active insurance policies by this segment is round 139-million. There’s still good news for the insurance companies: a fifth of existing life insurance policy holders feel under-assured, and another 20.56-million people intend to go in for their first or additional life policy in the next one year. But there’s a catch: a majority of these would-be insurance seekers, 14.4-million, are spread out across rural India.
For what’s interesting, and disappointing for individual banks, is the high number of customers using multiple banks. As many as 14 million individuals use two banks, and over two million customers have relationship with three or more banks. And what’s most worrying, as far as banks are concerned, is that as many as 26-million customers continue channeling a large part of their savings into post office schemes, ostensibly more out of sheer habit than any real benefit. So much for the sales, marketing and brand prowess of our state-led banking mammoths and their much-celebrated private sector rivals.
The findings are a peek into an exhaustive survey conducted by the Economic Times…More to come yet

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2 Responses

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  1. Dan Waldron said, on June 25, 2008 at 12:16 pm

    I finally decided to write a comment on your blog. I just wanted to say good job. I really enjoy reading your posts.

  2. Susan Kishner said, on June 25, 2008 at 12:28 pm

    Well said Great information, keep up the great work!

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