Medical credit and lending: The next frontier in healthcare financing

When it comes to a world-class hospital, top-notch medical devices, and trained professionals, the Indian healthcare ecosystem stands tall in front of the rest of the world. For millions of Indians, however, quality healthcare is still very far from their reach and not due to a lack of service availability but a lack of affordability. Families are being devastated as they struggle to even pay for essential treatment. Today, just a hospital visit with simple steps like registration, consultation, and a key scan will cost over Rs 10,000. This is a challenging burden for the daily wage earner or the small entrepreneurial class, forcing many to continue that condition, delay treatment, or worse, avoid it altogether.

India’s missing middle

India faces a severe healthcare financing crisis centred on its 'missing middle.' Over 400 million people represent roughly 30% of the population. This segment encompasses shopkeepers, self-employed workers, gig economy participants, farmers, and low-income salaried families caught in an impossible squeeze. These families find themselves in a cruel bind. Their income disqualifies them from government health schemes like Ayushman Bharat (PM-JAY), yet they lack the financial capacity for comprehensive private healthcare or insurance coverage.

The statistics reveal the magnitude of this crisis. Fewer than 3% of middle-income households carry health insurance. Indians pay 62% of healthcare costs directly from their pockets, among the world's highest rates. Another 23% comes from borrowing, often at punitive interest rates. Every year, 30-40 million Indians slip below the poverty line because of medical expenses. Medical costs inflate at 14% annually, the steepest rate across Asia.

Why traditional healthcare financing models have failed

Despite rapid advancements in India’s healthcare delivery, financing mechanisms have failed to keep pace.

1. Low levels of insurance penetration: Insurance premiums are often unaffordable for all middle-income families and have complex policy language. In addition, many insurance policies do not include coverage for outpatient claims, diagnostic tests, and medicine, which represent a majority share of total medical costs.

2. Limited availability of medical loans: Medical loans do exist, but they often require formal income proof, good credit scores, and collateral that many self-employed people or gig workers do not possess. Even when available, a loan adds household debt without addressing the larger issue of preparedness.

Moving forward: A different way to finance healthcare

To meet the challenge, India needs a hybrid financing framework comprising three pillars: micro-savings, interest-free medical credit, and affordable insurance coverage.

1. Micro-savings as the first line of defence: Saving even small amounts of money is a deeply embedded habit for most Indian households. Many families save small amounts regularly through informal schemes like chit funds and household reserves. Structured micro-savings models in which households save as little as Rs 50–100 every day can give families healthcare reserves to be used at the time of small medical events. Savings can also be done through instruments with stable growth, which will be helpful.

2. Medical credit as the second line of defence: When healthcare costs exceed savings, having access to low-interest or interest-free lending sources can bridge the gap. By linking loans to regular savings or using gold deposits or mutual fund accounts to secure the loan amount, lenders can lend credit without exposing families to unmanageable debt levels. This combined approach offers repayment incentives through personal accountability, as families are not simply borrowing money; they are borrowing from the equity they have built.

3. Affordable micro-coverages: Once families begin practising saving, micro-insurance products can cover specific lower-value health incidents or problems like a consultation, a diagnostic test, or a day-care procedure. A staggered introduction of micro-insurance products is a layered approach that forges family trust and encourages further use of insurance in conjunction with the developed savings behaviour.

Conclusion

In India, healthcare finance is at an inflection point. Conventional models will not address the missing middle by leaving millions of people vulnerable. With an integrated model that combines micro-savings, medical credit, and affordable coverage, India can transform into a future where access to healthcare won’t put families at financial risk. Healthcare should ensure life-including therapy, and it should not bankrupt families. If all aspects of affordability, accessibility, and dignity within a sustainable financing model are preserved, the future of healthcare can be bright and equitable.