Households often do not have a clear perception regarding their
outstanding loans. This is particularly the case with loans taken from
relatives and friends. Old and delinquent loans taken from such sources
are often not remembered by a respondent. Also, such loans taken by one
member may not be known to other members of the household and a respondent
to the survey may not have full information regarding the informal loans
taken by all members. There is therefore, a greater probability of a
loan taken from an informal loan being under-reported in a households
survey as against a loan from an institution such as a bank.
Consumer Pyramids shows that relatives and friends is the largest
source of borrowing of households in India. Thirty-two per cent of the
households that said that they did have an outstanding borrowing during
September-December 2014, said that they had a loan outstanding from
relatives and friends. This was a shade higher than banks, which showed up
as a source of borrowing in only 30 per cent of the borrower households.
The Consumer Pyramids’ estimate of 32 per cent for relatives & friends
being a source of loans is much higher than the June 2012 estimate of
about 6.3 per cent given by All India Debt and Investment Survey (AIDIS)
conducted by the National Sample Survey Organisation. The much larger
capture of a source of borrowing that is more difficult to capture,
in Consumer Pyramids compared to AIDIS is noteworthy. It is intriguing
that according to AIDIS, only two per cent of the households in rural
India who had outstanding loans had borrowed from relatives and friends.
According to AIDIS, 39 per cent of borrower-households in rural India
borrow from money-lenders. This is much higher than Consumer Pyramids’s
estimate of 20 per cent for the same and it partly compensates for the
low estimate for relatives and friends.
Nevertheless, AIDIS underestimates the importance of the informal sources
of borrowing used by households compared to Consumer Pyramids. The
combined share of the informal (or non-institutional, non-regulated)
sources of lending such as money-lenders and relatives & friends given
by AIDIS at about 42 per cent is significantly lower than the 54 per cent
estimate seen in Consumer Pyramids. Correspondingly, AIDIS overestimates
the importance of banks. It estimates that 45 per cent of households
who borrow, do so from banks. Consumer Pyramids places this figure at
30 per cent.