The big picture of Informal BNPL in India's $700 billion unorganised retail

BNPL is the buzzword in finance but what about a BNPL that has existed in India for ages. Most of us have used it in some form or the other whenever we have bought a product from a neighbourhood store and promised to pay later. This informal BNPL runs India's retail engine, with an estimated $400-$500 billion worth of retail trade happening on credit receivables.

However, beyond the fact that informal BNPL is a huge market, there is little known about it. OkCredit's annual study shines light on a sector that has so far remained data dark. Based on the insights generated from 1 billion transactions on its platform , the report is an endeavour to demystify the informal BNPL and its various parameters.

For example- a good indicator of a healthy BNPL is repayments. The repayment tenure, also known as credit cycle has come down for all categories, pointing to faster repayments in informal BNPL. Apparel and medical stores which saw their credit cycle jump up to more than 60 and 40 days respectively during peak of the pandemic in 2020,? have seen a steep decline.

The report gives a clear picture of credit behaviour in unorganised retail by dividing small businesses into medium, small and micro. While micro businesses contribute to the volume, medium and small businesses make up for the value. It further digs into several layers- category, geography, tier, B2B/B2C to come up with insights that are unique and a first in the sector.

Take NPAs (Non-performing assets) for instance. While NPAs for the organised sector are known and easy to measure, there is hardly any data on NPAs in informal BNPL. The report brings out an estimate of NPAs in informal BNPL, pegging them at 4% for medium businesses, 5% for small businesses and 8.2 % for micro businesses. Higher NPAs in micro businesses are due to small size of credit transactions. Shop owners, many a times have a laid back attitude when it comes to collection of small credit, which? later leads to NPAs.?

Micro businesses in Bihar, Rajasthan and Madhya Pradesh have the highest NPAs.? Geographically, Jammu and Kashmir has been the best performer when it comes to credit recovery for small businesses. It has seen NPAs decline from 7.8% to 3.4%.

The report also dwells intensely on peak credit size- the maximum amount of credit a shop owner records for an account. Peak credit size is a barometer for credit capacity of small, medium and micro merchants. Peak credit size for both small and medium businesses has expanded indicating a growth in their business. Since micro businesses were worst affected in the pandemic, a lot of them have reduced selling on credit and are optimising for positive cashflows. It’s reflected in the data, as credit size for micro businesses has only marginally increased and even declined in most cases.

The most important aspect of a credit business is credit recovery. OkCredit’s data shows that while cash payments are the primary mode of payment, digital payments are on the rise and growing steadily. Nearly 90% of the online payments users on the platform use UPI.? Within that,? 60% of the payments for purchases under Rs 200 are being made through UPI. ??GPay leads in UPI payments, followed by PhonePe, Paytm and Bhim. Paytm is a leader in small ticket transactions- under Rs 200 payments and dominates at paan shops.

To read the report in detail, visit- https://okcredit.in/assets/OkCredit_Annual_Report_2021.pdf