Even as the government has sought to waive off the debt of a large proportion of the rural poor, their urban counterparts, in many cases, seem to be even worse off. Statistics show that almost 90 per cent of the 2.8 million low income urban workers who borrowed in the last two years, obtained loans from ‘informal sources’ like moneylenders, friends and relatives at very high interest rates — contrary to the popular perception that urban areas have better access to institutional credit.Only 10 per cent managed to secure loans from banks, cooperative societies and micro finance institutions. Put together, the urban poor accumulated outstanding debt of over Rs 5,300 crore over the last two years, which is estimated to be 60 per cent of the total outstanding debt of all 19 million urban poor currently. And only 22 per cent of this lending came from the institutional credit net. (An urban low income worker is defined as one with an annual household income of up to Rs 39,600)On the other hand, small and marginal farmers who form the biggest component of the ‘rural poor’ fared markedly better, securing almost 25 per cent of their loans through formal channels. Statistics indicate that the largest proportion of urban low income borrowers (48 per cent) obtained funds from relatives and friends, while 24 per cent approached moneylenders. In contrast, 32 per cent and 41 per cent of the small and marginal farmers resorted to loans from these sources respectively. The statistics come from a survey of 1 million houses conducted by Invest India Market Solutions last year.The highest number of these low income workers turned out to be ‘own-account workers’ like domestic help, rickshaw-pullers and carpenters, who do not operate on a fixed contract. Almost half of them lived in class 1 towns having populations greater than 1 lakh. As in the case of the rural poor, almost half of these urban borrowers secured informal loans at interest rates greater than 36 per cent. Even self-help groups, which are thought to have greater penetration in urban areas, failed to provide any succour to the poor there.“It is a fact of the matter that financial inclusion for urban poor is not much better than in rural areas. Banks are hesitant to lend to urban poor since their income tends to be less regular and much more volatile,” says National Council for Applied Economic Research director general Suman Beri. The survey findings too indicate that 25 per cent of urban poor reported problems in generating a sustainable, level income throughout the year.
