New borrowers across all age groups in India and abroad perform better than those with established credit and risk scores, finds a global survey of TransUnion, a US-headquartered consumer credit reporting agency. The research titled “Empowering Credit Inclusion: A Deeper Perspective on New-to-Credit Consumers,” highlights that new-to-credit (NTC) consumers are “key contributors” to India’s sustainable financial inclusion and economic growth. It noted that consumers early in their credit journeys usually perform better than borrowers with established credit and risk scores.
The findings will assure lenders in developed and developing markets “to extend additional credit products to NTC consumers without being at risk of materially higher delinquencies”.
The study insights about millions of consumers in various markets, including India, Brazil, Colombia, Canada, Dominican Republic, Hong Kong, Philippines, South Africa, and the US.
The responders were consumers with no prior credit history on credit bureaus—people who have taken their first personal or two-wheeler loan, agricultural or gold loan, or home loan, etc.
The research looked into the credit profiles of consumers who were in their first two years of a formal credit journey to understand their needs and delinquency issues, if any, after six months.
The study then compared them with borrowers who have taken similar types of products having established credit histories in the same period.
It found that in 2021, 35 million consumers in India opened their first credit product, joining the growing number of new-to-credit (NTC) consumers worldwide. Furthermore, in the first nine months of the following year, another 31 million became NTC.
Attributing this growth to the emergence of women, youth and rural customers as profitable segments in the market, Rajesh Kumar, MD and CEO of TransUnion CIBIL, a TransUnion Group company, in a press release on Tuesday, said, “The findings emphasise that by further empowering this segment of consumers with timely, customised credit opportunities, credit institutions can help them fulfill their aspirations, while driving profitable business growth.”
In 2021, millennials (those born between 1980 and 1994) made up the largest part of NTC with 42 per cent, followed by Gen Z (born between 1995 and later), 29 per cent.
In India, NTC consumers are more concentrated in rural or semi-urban areas comprising 67 per cent in 2021, compared to 57 per cent of the overall NTC accounts.
Also, between 2017 and 2022, women comprised 32 to 34 per cent of NTC consumers in India, while those in rural areas jumped from 30 per cent in 2017 to 34 per cent of all NTC consumers in 2022.
The largest growth was in the 18-30 age groups, up from 31 per cent in 2017 to 45 per cent in 2022. In addition, consumer durable loans are usually the first credit product opened by most NTC borrowers in India. Among the NTC consumers who took consumer durable loans, a higher proportion were women at 29 per cent compared to 14 per cent credit served.
Moreover, 48 per cent of the NTC consumers that chose consumer durable loans were from rural and semi-urban areas, compared to 35 per cent of credit served consumers with the same risk and age dimensions, indicating “consumers entering the credit market for the first time have unique needs that lenders can serve by gaining a deeper understanding of their needs”, the study said.
Also, the report said, in the case of personal loans, credit cards, and agricultural loans, “almost twice the ratio of NTC consumers were women in underserved geographies, emphasizing India’s tremendous progress in advancing financial inclusion”.
Concluding the findings, Kumar said the study demonstrates that NTC consumers are “often good risks”, and would “show loyalty to financial institutions,” offering them their first credit. NTC borrowers around the globe, he added, will play a major role in credit growth.