Salary On-demand Vital To Protect Blue-collared Indian Workforce From Credit Traps The product is designed to facilitate income needs of workers across categories and salary brackets, preventing them from falling prey to debt cycles

By Chitresh Sharma

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Financial stability is a privilege that few have and one that's been put to the test on many occasions during these pandemic years. A recent EY study found that 80 per cent Indians run out of money before month-end, and over a third run out of money halfway through the month. And this is just when factoring in regular household expenses. Imagine the plight of having to deal with an unexpected hospitalization, an all-too-common occurrence at the height of the pandemic.

For the many Indian employees, particularly the blue-collar workforce, struggling to make ends meet, such unexpected expenses can suck them into a debt spiral. Many don't have favourable credit scores and access to formal credit.

Blue-collar workers form the backbone of our economy. They comprise a large percentage of India's total workforce, which is estimated to be around 500 million at present, of which around 210 million belong to agri and allied sectors, while the remaining work in sectors such as construction and real estate, manufacturing and utilities, retail, e-commerce, and transportation and logistics.

Financial literacy is also fairly low among this group, and as a consequence, they end up falling prey to predatory lending practices like payday loans and other lending apps which charge high interest rates. Such services are happy to provide loans, but at such exorbitant interest rates that most struggle to pay back the interest, let alone the principal. There are several stories of borrowers facing harassment from collection agents, complicating their lives further. While regulators are cracking down on such unregulated activity, monitoring informal lending will always be a challenge.

In this backdrop, salary-on-demand or earned wage access is coming up as an innovative, risk-free financing solution. The product is designed to facilitate income needs of workers across categories and salary brackets, preventing them from falling prey to debt cycles. Access to earned wage simply means that you, as an employee, will have complete freedom and timely access to your earned salary anytime, addressing your financial needs proactively. If you've worked 10 days, salary-on-demand gives you access to those days' worth of salary. You're not liable to pay interest as it's not a loan or credit, or even an advance on your salary. It is simply withdrawing and spending the money you have rightfully worked for and earned.

How on-demand salary can financially empower the blue-collared economy

The EY report notes that "about 81 per cent of Indian employees who have experienced financial difficulties have reported mental distress, health problems and lower morale".

This problem is more apparent amidst the blue-collared workforce. According to a CIBIL study there are around 120 million households with a yearly income between INR 2 lakh and INR 5 lakh. Most of these households struggle to maintain a sufficient level of income and struggle to manage expenses towards month end. They also grapple with a lack of financial awareness and have limited access to affordable financial solutions.

Salary-on-demand can prevent these workers from falling in debt traps by making them self-sufficient. The rising living expenses, high cost of healthcare, and having to cater to unforeseen contingencies make managing personal finances a daunting challenge, especially for blue collared workforce, hence having access to their own earned income acts as a security blanket. More importantly, it lends a strong sense of independence, dignity from not having to depend on others for liquidity.

Employers also stand to benefit

The biggest advantage to enabling this solution is better productivity courtesy less-stressed employees, and better retention in the long run. It's also an attractive proposition for new employees in a job-rich market as it brings in a competitive advantage for employers, making them a preferred organization to work with. Almost 60 per cent Indian employees said salary on-demand would be a deciding factor for their next job. Moreover, in the digital era, where dealing with modern, digital payroll systems are becoming a norm, salary-on-demand is a progressive and simple plug-and-play concept. It integrates with a company's existing payroll system with zero cost, risk and changes.

Empowering the workforce

According to BCG's report 'Unlocking the Potential of the Gig Economy in India', roughly 24 million new jobs could get created in the gig blue-collar space, and by 2028 this could reach around 90 million jobs.

Companies that are coming together to create opportunities for the blue-collar segment by up-skilling them technologically not only will open a whole new plethora of jobs, for the hitherto semi-skilled laborers but are also a means to unravel a better future for them and their generations to come. In addition to that many fintech's are working towards offering them financial stability. These efforts will ultimately lead to the growth of the overall economy.

Chitresh Sharma

CEO and Co-founder, Refyne

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