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Nov 16, 2016

Gold Loan, Next Financial Market of India

The Gold loans in India have been in existence since centuries, in the form of unorganized institutions such as money lenders and pawn shops, delivering immediate and easy access to loans against gold jewellery, gold coins or gold bars as security. The practice of pawning, redeeming and re-pawning of gold is very prevalent from ages ago. Until a couple of decades ago, the whole market was covered by unorganized private players who would give loan against gold at usurious interest rates. The unorganized players still command almost two-third of the market.

The easy availability of gold in Indian households and the minimum chance of consumers defaulting on loans are making the loan-against-gold market grow in the country. The gold loans market now valued at 7.95-9 billion dollars is set to grow manifold as more financial institutions and banks enter the lucrative business. The gold loan-business in the country has flourished over the past few years. Having its roots in southern India, the business is gradually picking up in other parts of the country also.

According to an estimation of the ICRA Management Consulting Services (IMACS), the organized gold loan-market in India stands at $8 billion USD and is growing at a compound annual growth rate of 40 per cent since 2002. With more financial institutions and banks entering this lucrative and safer business, the industry is set to grow manifold. Private Banks too are cashing in on this trend. The flow of gold in the market will add to economic growth of the country. Since rural India holds 65 per cent of the total gold stock, organized players in the gold loan industry are targeting rural customers to fulfill their requirement for gold.

The Gold Loan Market in India is the biggest market in the world probably due to large demand of gold by the Indians. Every year India imports around 900 tonnes of gold for consumption and it has the largest gold stock of 22000 tonnes which is privately held by domestic households and temples. The low income groups in India are the major customers of gold loan. Century’s old practice of lending money against security of gold has been continuing in India in an unorganized manner. Farmers, peasants buy gold during the months of prosperity and stock it in the form of jewelleries and ornaments and then pledge it to the local money lender or pawn brokers during tough times to meet their financial requirements. This peculiar phenomenon in India has given rise to the gold loan market.

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