The mobile phone purchase trend aligns with the growing practice among people working in the informal sector, such as small business owners, daily wage earners, and freelancers. The availability of mobile phones on EMIs is helping them build a credit history, making them eligible for further credit. Additionally, government initiatives like the Jan Dhan Yojana have increased the number of bank account holders, improving access to formal banking and financial services.
“The key channels for the entry of new-to-credit (NTC) borrowers are consumption-led loans such as mobile phone purchases and purchase of two-wheelers. Mobile purchases have emerged as a dominant channel because everyone needs a phone.”Bhavesh Jain, MD and CEO of TransUnion Cibil told TImes of India. He added,”This trend is supported by tie-ups between mobile phone manufacturers who have access to the device.”
In recent years, digital lending has enabled consumers to access credit through EMIs at the point of sale, where the loan agreement is made, and payments are processed via debit card swipe to the retailer. Lenders such as Bajaj Finance, HDB Financial Services, and various private banks offer this type of credit.
In some cases, the Original Equipment Manufacturer (OEM) provides an interest subvention, making no-cost EMIs available to the customer. This no-cost EMI option has led to a significant portion of smartphone sales being financed through credit. In some instances, lenders also pass on part of the interest subvention to customers, offering them better pricing.
Taking out a loan, even a small one, can make it easier to secure loans in the future as it helps build a credit score. This score is determined by factors such as credit exposure, utilization, inquiry trends, payment behavior, current and past delinquencies, and account status. While the Cibil score is not the only factor lenders consider, most lenders use it to evaluate loan eligibility.
According to the Times of India report, enrolling new-to-credit borrowers benefits lenders by expanding the market and fostering customer loyalty. Jain further shared with TOI, “Our data shows that more than 40% of first-time borrowers return to the same lender for a second loan in the future.”