India’s traditionally cash-dominated smaller towns and rural areas are witnessing an increase in credit-driven consumption, spurred by deeper penetration of consumer financing and new bank account openings under the government’s Pradhan Mantri Jan Dhan Yojana (PMJDY).
For instance, credit-led purchase of two-wheelers in rural India at 62% has outpaced urban (58%) so far this fiscal year. In electronics and smartphones too, financing now accounts for 30-40% of all purchases in rural markets, sharply higher from about 20% two years ago, according to industry executives.
Financial inclusion of customers in rural areas through the PMJDY scheme has helped increase penetration of finance companies, large retail chains and e-commerce marketplaces such as Amazon and Flipkart, driving credit-led consumption.
In two-wheelers, greater access to financing is enabling consumers to upgrade, according to the country’s largest two-wheeler makers Hero MotoCorp and Honda Motorcycle & Scooter India (HMSI). Sales of pricier 125cc motorcycles and scooters have climbed 55% so far this fiscal, compared to a marginal 2% increase in sales of entry two-wheelers, helping drive industry volumes by 16%, topping initial estimates of 10-12%.
At HMSI, rural markets have seen a sharper increase in finance penetration to 51% in FY25, from 40% in FY21, largely powered by enhanced 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, financing has enabled consumers to upgrade to models offering more features and performance. The shift in customer preferences, particularly in rural areas, is evident with a growing inclination towards 125cc models. The price gap between entry-level models and the 125cc segment has narrowed, driving demand for the latter,” said Mathur.
Rival Hero MotoCorp too feels finance penetration is crucial for driving two-wheeler sales in rural markets. To this end, the company launched Hero Digi Fin, a loan aggregator platform intended to reduce approval time and speed up loan sanctions.
“So, as adoption happens on Digi Fin, what it will do is make financing more accessible to a wider set of people who are right now probably not able to access it. Most of our financiers are onboard on this. And this has huge potential,” Niranjan Gupta. chief executive officer told analysts recently.
Currently, more than 80% of adults have a formal financial account, up from about 50% in 2011, as per 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 threefold rise from 147 million accounts with Rs 15,670 crore deposits in March 2015.
As much as 66.6% of these accounts are in rural and semi-urban areas, putting in place a framework for finance companies to extend credit with ease to buyers in these markets. This, in turn, brands confirmed has led to the growth in sales of premium products in rural India.
In consumer durables, appliances manufacturer Haier India president Satish NS said finance accounts for 60% of all purchases in urban India compared to 40% in rural.
“(But) finance companies are venturing deeper into the market, especially tier 3 and 4 towns. This may increase the cost of selling since there is 5-6% interest cost which we absorb to provide no-cost EMI to consumers, but it’s developing the markets for us and boosting demand,” he said.
Godrej Appliances business head Kamal Nandi confirmed the rate of growth in sales is faster in smaller towns and rural India due to the entry of finance companies. “In fact, this summer, most of the AC purchases in smaller towns were on finance. The growth of premium products and high ticket items in smaller towns is 5-7 percentage points higher than urban due to finance,” he said.
Looking ahead, the festive season appears promising for two-wheelers and appliances brands thanks to easy availability of credit, plentiful rains, improved infrastructure, and rising disposable incomes.
