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Watch Out: India’s Aadhar And The Consumer Credit Tsunami

14 points by npguy 14y ago

nacker 14y ago
The disturbing thing about this piece is that it seems to imply that a tsunami of credit cards will be a positive thing for India. How anyone can think this in view of the global debt crisis is puzzling. The smarter fraction of the population in the first world now tends to regard credit cards as akin to crack, opium, or junk food. Things the moderate use of which calls for unusual levels of self-discipline. I'm sure the prospect of millions of new credit card slaves in India has its Shylocks salivating, but let's hope something has been learned about the consequences of failing to keep them under close scrutiny.
- npguy 14y ago
  Agree, one hundred percent. If the way housing loans work in India is a pointer, you will see a lot of scrutiny in the way the credit cards would be managed. Indian banks are decidedly conservative.
  - RationalPi 14y ago
    Not really. It is much easier to obtain credit cards than bank loans in India. Infact banks constantly call the people offering credit cards (to the point where people become irritated). To get housing loans, you have to provide significant collateral. Net, consumerism and debt load is going to screw the largest middle class base...
    - npguy 14y ago
      That perception is wrong, before they issue the card, they request income proofs, do residence verification etc. Moreover, if payment is not made, there is a follow-up process that will put village moneylenders to shame. Credit limits are also set in a very conservative manner.
    - train_robber 14y ago
      You are talking about the scene 3 or 4 years back. There is a significant amount of background checks before credit cards are issued especially if you are not employed in a big brand IT company.
- pessimist 14y ago
  Access to credit is a huge deal for people. How else to create a small business, tide over a health crisis, or make a big education investment? Right now poor people are at the mercy of pawnbrokers, loan sharks who often charge interest rates of 100%+ per year. Potentially access to reasonable rate credit cards is life-changing.
  - nacker 14y ago
    If you can't think of any way to create a small business other than by using a credit card, you probably shouldn't be starting a business. Making a "big education investment" on a credit card is insanity. The student loan debt crisis may well be the next domino to fall in the the US economic meltdown - it was half the motivation for the participants in Occupy: http://business.time.com/2012/11/29/is-the-student-loan-debt-crisis-worse-than-we-thought/ http://business.time.com/2012/11/29/is-the-student-loan-debt... Rates on credit cards are generally less than reasonable, and their policies are frequently abusive. And this is in America, not the "wild East". http://www.mybudget360.com/endgame-credit-card-nation-40-year-credit-card-bull-market-over/ http://www.mybudget360.com/endgame-credit-card-nation-40-yea... Watch, or listen to this, if you are concerned about India's future exploitation: http://www.democracynow.org/2010/2/23/robert_manning_credit_card_nation_the http://www.democracynow.org/2010/2/23/robert_manning_credit_...
- slurgfest 14y ago
  Individual credit card debt is NOT what precipitated the global debt crisis.
  - nacker 14y ago
    I didn't claim it was the only factor. Read this: http://seekingalpha.com/instablog/428250-michael-clark/605631-private-debt-caused-the-current-great-depression-not-public-debt http://seekingalpha.com/instablog/428250-michael-clark/60563...
anovikov 14y ago
Why do you think credit cards are a good thing? They are neither especially popular here in Europe where people are educated and have money. I am 33, M.S., mid-six figures income, and never had one and don't want it. And never took any other kind of debt, either. I know a lot of people like me. I think Indians are good at their frugality and correctly understand that using a credit card is 'spending money they don't have'.
- npguy 14y ago
  I was tempted to start the response with "When used wisely" then realized that it would be a huge assumption to make. The article was not trying to state that credit cards are a good thing. The message that I wanted to get across was that a huge growth in credit spending is inevitable given what is happening in India right now, in terms of enabling factors. And that will have global implications.
- roel_v 14y ago
  How do you buy stuff online?
  - anovikov 14y ago
    Using debit cards. Ah wait, my Visa is technically a credit card with a 0 credit limit. So in a way, i have one. But i rarely use it, most time i make do with Visa Electron debit cards.
fareesh 14y ago
As a 27-year-old member of the Indian middle class, I tend to side more with the notion that credit cards are a less sensible alternative for general spending, for all the reasons already discussed here. This is a fairly popular opinion among most of my peers, but not because of the cultural stigma mentioned in the article, but a general sense of frugality, as another comment mentions.
- npguy 14y ago
  That approach might not be good for the economy overall though. India will become a spending driven society, like the US. In which case, credit will play a big role. It is just inevitable.
  - fareesh 14y ago
    Whether or not it is, I don't think the average middle class consumer is going to be concerned with anything but their own financial well-being, over other relatively macro-economic considerations and consequences.
    - npguy 14y ago
      you are underestimating the power of the government and central bank. if they decide that they want to move the country in a given direction, they have all the tools to make it happen. Just look at the way US home buyers got immediate tax credit as an example of how this could play out.
realrocker 14y ago
The concerned regulatory bodies in India are staffed with people from a different middle class. A class where living simply and being debt free are the basic tenets of life. This class is from small towns and villages of India who view a Government job as a King's prize. India has such a low credit card ratio due to the large number of regulations .It is a cultural thing, yes, but the rules are created by a different set of people for another. Also, Credit Card implies independence and privacy. If you need a loan in India, almost always, parents will come through. Most MNC Credit Houses don't get that India already has a Credit source for small amounts of money in the form of entrenched family system. Home loans and Car loans on the other hand are a different story. And since, Credit Cards are primarily used for low spending, I don't see them growing exponentially for at-least two generations(i.e about 50-60 years). That's how long I think the family system is going to survive.
- npguy 14y ago
  Very important points - all of them very valid. Except maybe this: " I don't see them growing exponentially for at-least two generations(i.e about 50-60 years)" - I would say, there are so many variables that decide this. For example, taking huge housing loans was something unimaginable few years back in India. I guess my point is this: if we think it will take 60 years, it will probably take 6. or less than that.
  - realrocker 14y ago
    Let me explain that more. Based on some projections(http://articles.economictimes.indiatimes.com/2011-11-12/news/30391268_1_largest-economy-demographic-dividend-indian-economy http://articles.economictimes.indiatimes.com/2011-11-12/news...) India will have spending power matching present best. My hypothesis is that as there is more liquidity to go around, families won't need the economic pressure to stay nuclear close. This would lead to break down in credit discipline and thus allowing the emergence of credit cards. Right now and for two generations this does not feasible(i.e by and after 2050). Well, based on one of the many variables atleast, though a major variable.
    - 14y ago
chandru89new 14y ago
How unfortunate that 'spending money you don't have' is considered backward. It kind of irked me because the piece isn't sensible. It's a cultural thing that Indian middle-class tends to be disciplined about expenses. And it's a good thing actually. But like it's said, some men want to watch the world burn. Like how families in the US had to do double jobs to get rid of debt, the global consciousness wants Indians to suffer the same fate. Great.
- npguy 14y ago
  I replied to your comment on the original post: 'Thanks for the comment. Obviously, the use of the word “problem” sends out a message that somehow we think credit is good for India. Thanks for pointing that out – we have tried to fix that in the article, and hopefully as a result, the messaging changes as well. The intended messaging was this: the sheer scale of credit that would originate from India in the next 3-4 years cannot be ignored.'
  - chandru89new 14y ago
    Fair enough :) Sorry the reply here is late. I just logged in to check my profile.
rikacomet 14y ago
It seems people here are forgetting that in the case of Aadhaar, the real reason for it is the official one, which is in short term, it is to track that the 40,000 crore (7.2 Billion$) subsidy given to the poor people of the country should reach the right people, right now, the paper and pen system has lot of room of corruption seeking in, and infact thats true, that a lot of the subsidy bill, doesn't arrives in a timely manner to its correct beneficiaries. When the record system would be digitalised, and centralized, it won't be that easy to tamper with the records as it is right now. Additionally, in long term, it will allow the govt to track the implementation of its various policies more precisely. In short it is what the SOCIAL SECURITY NUMBER is to the western civilization.
redwood 14y ago
I'm not a big fan of these PR fluff pieces companies put out about their supposed future potential on HN... This coupled with the marketing advice blogs that mention doing precisely this on HN makes the whole exercise harder to take seriously. Sure: there will probably be money in India's consumer credit. Will this be the company to do it? Maybe. But getting there's the hard part....

14 points by npguy 14y ago

The disturbing thing about this piece is that it seems to imply that a tsunami of credit cards will be a positive thing for India. How anyone can think this in view of the global debt crisis is puzzling. The smarter fraction of the population in the first world now tends to regard credit cards as akin to crack, opium, or junk food. Things the moderate use of which calls for unusual levels of self-discipline. I'm sure the prospect of millions of new credit card slaves in India has its Shylocks salivating, but let's hope something has been learned about the consequences of failing to keep them under close scrutiny.

npguy 14y ago
Agree, one hundred percent. If the way housing loans work in India is a pointer, you will see a lot of scrutiny in the way the credit cards would be managed. Indian banks are decidedly conservative.
- RationalPi 14y ago
  Not really. It is much easier to obtain credit cards than bank loans in India. Infact banks constantly call the people offering credit cards (to the point where people become irritated). To get housing loans, you have to provide significant collateral. Net, consumerism and debt load is going to screw the largest middle class base...
  - npguy 14y ago
    That perception is wrong, before they issue the card, they request income proofs, do residence verification etc. Moreover, if payment is not made, there is a follow-up process that will put village moneylenders to shame. Credit limits are also set in a very conservative manner.
  - train_robber 14y ago
    You are talking about the scene 3 or 4 years back. There is a significant amount of background checks before credit cards are issued especially if you are not employed in a big brand IT company.
pessimist 14y ago
Access to credit is a huge deal for people. How else to create a small business, tide over a health crisis, or make a big education investment? Right now poor people are at the mercy of pawnbrokers, loan sharks who often charge interest rates of 100%+ per year. Potentially access to reasonable rate credit cards is life-changing.
- nacker 14y ago
  If you can't think of any way to create a small business other than by using a credit card, you probably shouldn't be starting a business. Making a "big education investment" on a credit card is insanity. The student loan debt crisis may well be the next domino to fall in the the US economic meltdown - it was half the motivation for the participants in Occupy: http://business.time.com/2012/11/29/is-the-student-loan-debt-crisis-worse-than-we-thought/ http://business.time.com/2012/11/29/is-the-student-loan-debt... Rates on credit cards are generally less than reasonable, and their policies are frequently abusive. And this is in America, not the "wild East". http://www.mybudget360.com/endgame-credit-card-nation-40-year-credit-card-bull-market-over/ http://www.mybudget360.com/endgame-credit-card-nation-40-yea... Watch, or listen to this, if you are concerned about India's future exploitation: http://www.democracynow.org/2010/2/23/robert_manning_credit_card_nation_the http://www.democracynow.org/2010/2/23/robert_manning_credit_...
slurgfest 14y ago
Individual credit card debt is NOT what precipitated the global debt crisis.
- nacker 14y ago
  I didn't claim it was the only factor. Read this: http://seekingalpha.com/instablog/428250-michael-clark/605631-private-debt-caused-the-current-great-depression-not-public-debt http://seekingalpha.com/instablog/428250-michael-clark/60563...

anovikov 14y ago

Why do you think credit cards are a good thing? They are neither especially popular here in Europe where people are educated and have money. I am 33, M.S., mid-six figures income, and never had one and don't want it. And never took any other kind of debt, either. I know a lot of people like me. I think Indians are good at their frugality and correctly understand that using a credit card is 'spending money they don't have'.

npguy 14y ago
I was tempted to start the response with "When used wisely" then realized that it would be a huge assumption to make. The article was not trying to state that credit cards are a good thing. The message that I wanted to get across was that a huge growth in credit spending is inevitable given what is happening in India right now, in terms of enabling factors. And that will have global implications.
roel_v 14y ago
How do you buy stuff online?
- anovikov 14y ago
  Using debit cards. Ah wait, my Visa is technically a credit card with a 0 credit limit. So in a way, i have one. But i rarely use it, most time i make do with Visa Electron debit cards.

fareesh 14y ago

As a 27-year-old member of the Indian middle class, I tend to side more with the notion that credit cards are a less sensible alternative for general spending, for all the reasons already discussed here. This is a fairly popular opinion among most of my peers, but not because of the cultural stigma mentioned in the article, but a general sense of frugality, as another comment mentions.

npguy 14y ago
That approach might not be good for the economy overall though. India will become a spending driven society, like the US. In which case, credit will play a big role. It is just inevitable.
- fareesh 14y ago
  Whether or not it is, I don't think the average middle class consumer is going to be concerned with anything but their own financial well-being, over other relatively macro-economic considerations and consequences.
  - npguy 14y ago
    you are underestimating the power of the government and central bank. if they decide that they want to move the country in a given direction, they have all the tools to make it happen. Just look at the way US home buyers got immediate tax credit as an example of how this could play out.

realrocker 14y ago

The concerned regulatory bodies in India are staffed with people from a different middle class. A class where living simply and being debt free are the basic tenets of life. This class is from small towns and villages of India who view a Government job as a King's prize. India has such a low credit card ratio due to the large number of regulations .It is a cultural thing, yes, but the rules are created by a different set of people for another. Also, Credit Card implies independence and privacy. If you need a loan in India, almost always, parents will come through. Most MNC Credit Houses don't get that India already has a Credit source for small amounts of money in the form of entrenched family system. Home loans and Car loans on the other hand are a different story. And since, Credit Cards are primarily used for low spending, I don't see them growing exponentially for at-least two generations(i.e about 50-60 years). That's how long I think the family system is going to survive.

npguy 14y ago
Very important points - all of them very valid. Except maybe this: " I don't see them growing exponentially for at-least two generations(i.e about 50-60 years)" - I would say, there are so many variables that decide this. For example, taking huge housing loans was something unimaginable few years back in India. I guess my point is this: if we think it will take 60 years, it will probably take 6. or less than that.
- realrocker 14y ago
  Let me explain that more. Based on some projections(http://articles.economictimes.indiatimes.com/2011-11-12/news/30391268_1_largest-economy-demographic-dividend-indian-economy http://articles.economictimes.indiatimes.com/2011-11-12/news...) India will have spending power matching present best. My hypothesis is that as there is more liquidity to go around, families won't need the economic pressure to stay nuclear close. This would lead to break down in credit discipline and thus allowing the emergence of credit cards. Right now and for two generations this does not feasible(i.e by and after 2050). Well, based on one of the many variables atleast, though a major variable.
  - 14y ago

chandru89new 14y ago

How unfortunate that 'spending money you don't have' is considered backward. It kind of irked me because the piece isn't sensible. It's a cultural thing that Indian middle-class tends to be disciplined about expenses. And it's a good thing actually. But like it's said, some men want to watch the world burn. Like how families in the US had to do double jobs to get rid of debt, the global consciousness wants Indians to suffer the same fate. Great.

npguy 14y ago
I replied to your comment on the original post: 'Thanks for the comment. Obviously, the use of the word “problem” sends out a message that somehow we think credit is good for India. Thanks for pointing that out – we have tried to fix that in the article, and hopefully as a result, the messaging changes as well. The intended messaging was this: the sheer scale of credit that would originate from India in the next 3-4 years cannot be ignored.'
- chandru89new 14y ago
  Fair enough :) Sorry the reply here is late. I just logged in to check my profile.

rikacomet 14y ago

It seems people here are forgetting that in the case of Aadhaar, the real reason for it is the official one, which is in short term, it is to track that the 40,000 crore (7.2 Billion$) subsidy given to the poor people of the country should reach the right people, right now, the paper and pen system has lot of room of corruption seeking in, and infact thats true, that a lot of the subsidy bill, doesn't arrives in a timely manner to its correct beneficiaries. When the record system would be digitalised, and centralized, it won't be that easy to tamper with the records as it is right now. Additionally, in long term, it will allow the govt to track the implementation of its various policies more precisely. In short it is what the SOCIAL SECURITY NUMBER is to the western civilization.

redwood 14y ago

I'm not a big fan of these PR fluff pieces companies put out about their supposed future potential on HN... This coupled with the marketing advice blogs that mention doing precisely this on HN makes the whole exercise harder to take seriously. Sure: there will probably be money in India's consumer credit. Will this be the company to do it? Maybe. But getting there's the hard part....