Be it farmers in rural areas, working women in urban areas, elderly people looking for momentary financing or SME entrepreneurs looking for quick working capital, gold loans will meet the needs and aspirations of all. | Photo credit: The Hindu
Sripad Jadhav
“The desire for gold is not for gold’s sake. It’s about freedom and benefit.”
Poet Ralph Waldo Emerson’s insightful reference to humanity’s eternal longing for the yellow metal perhaps sums up the mood of contemporary Indians. The financial freedom offered by gold, the eternal haven, and its ability to satisfy immediate desires, are increasingly driving Indian households to seek loans against their precious metals.
Be it farmers in rural areas, working women in urban areas, elderly people looking for momentary financing or SME entrepreneurs looking for quick working capital, gold loans will meet the needs and aspirations of all.
Gold’s intrinsic value tends to withstand economic fluctuations, making it a reliable asset for both borrowers and lenders. According to a report by the World Gold Council, Indian households have record gold reserves of 24,000 tonnes and even a petite percentage of this gold reaching the formal economy can add significant value to the economy.
Indian women who consider gold to be a key part of their valuable savings and investments can also harness the power of this metal to further their entrepreneurial ambitions. While urban women are comparatively advantaged in terms of financial ability, rural women can creatively apply gold to raise funds to improve their living conditions and income levels. In this case, gold loans can provide women entrepreneurs with easier access to capital to start or expand their business, with much greater flexibility.
Whether they are starting petite enterprises such as papad making, tailoring, dairy farming or crafts, women can leverage gold loans to pursue their entrepreneurial aspirations or invest in their children’s education, adding to the household’s net worth as well as the future of the family.
Rural India has been dreaming of gold for generations. According to the latest data, rural areas account for almost 60% of the total consumption of the yellow metal, which is considered the most trusted asset and salvation in times of financial crises. In this context, gold loans have emerged as a powerful instrument for empowering rural economies across India. By leveraging the intrinsic value of gold assets, these loans provide much-needed liquidity, stimulate entrepreneurship and contribute to the overall development of the community. However, many rural areas in the country still have to deal with unorganized and unregulated gold loan providers, including moneylenders, losing valuable gold in the process.
Ideally viewed, gold loans are a quick and reliable option that can enable farmers to raise productivity and add value to their agricultural assets. By using gold as collateral, farmers can access cost-effective funds to purchase seeds, fertilizers, machinery and other inputs needed to run their farming operations. By leveraging their gold resources, farmers can raise yields, improve profitability and diversify their farming activities by using up-to-date farming techniques and tools, thereby reducing their vulnerability to unsafe product sales and improving cash receipts.
Preserving wealth
Gold has enormous cultural and social significance in Indian society, often passed down from generation to generation as an heirloom or part of religious rituals and ceremonies. There is an emotional bond and ancestral affinity. No wonder Indian families are believed to have the largest private stash of the yellow metal in the world – valued at a staggering $2 trillion. Gold loans are designed with this sensitivity in mind to enable individuals to retain ownership of gold assets while providing them with much-needed liquidity when needed. Thanks to this, the cultural heritage recorded in gold will be preserved and passed on to future generations, even if it constitutes a source of financial security and empowering rural households.
Moreover, one of the key features of gold loans is the flexibility of repayment options. Borrowers can choose repayment schedules that suit their cash flow cycles, making it easier to manage debt obligations without being overly burdensome. This flexibility ensures that borrowers can comfortably repay their loans, reducing the risk of default and supporting a culture of responsible borrowing and lending.
Moreover, the transformative impact of gold loans extends beyond individual borrowers to the broader community. As businesses prosper and incomes raise, local economies experience a ripple effect of economic growth and development. Increased economic activity leads to job creation, improved infrastructure and improved living standards for rural residents. Gold loans therefore play a vital role in catalysing community development and supporting inclusive growth in rural India.
In times of economic crises, rural communities often become the most vulnerable, facing challenges such as crop failures, rising debt and narrow income opportunities. At times like these, gold loans provide a source of stability and resilience, providing individuals and businesses with the financial resources they need to weather the storm. By leveraging their gold assets, rural households can withstand economic shocks, maintain their livelihoods, and emerge stronger from adversity.
In conclusion, gold loans have become a tool for transforming economies like India, providing much-needed liquidity, stimulating entrepreneurship and supporting the community. Given our huge reserves, the potential is too great to ignore; Indian households with 27,000 tonnes of gold (14% of the world’s reserves) declared only about 5,300 tonnes. According to a CIBIL survey conducted in December 2023, the gold lending industry is progressing at Rs 7.15 lakh crore, growing at a CAGR of 19% over the last three years.
Given the freedom and benefits that gold loans offer, Indian households may find them the right product to fulfill their innate desires and aspirations.
(The author is President, Retail Agriculture and Gold Lending, Kotak Mahindra Bank Ltd.)
