Shripad Jadhav
“The desire of gold is not for gold. It is for the means of freedom and benefit.”
Poet Ralph Waldo Emerson’s astute reference to mankind’s eternal yearning for the yellow metal perhaps summarises the mood of Indians these days. The financial freedom offered by gold, the eternal haven, and its ability to fulfil immediate desires are increasingly driving Indian households to seek loans against their precious metal.
Be it farmers in rural areas, working women in urban areas, elderly seeking temporary finance or MSME entrepreneurs looking for quick working capital, gold loans are satisfying everyone’s needs and aspirations.
Gold’s intrinsic worth 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 a record gold reserve of 24,000 tonnes, and even a small percentage of it coming into the formal economy can add significant value to the economy.
Indian women who hold gold as a key part of their cherished savings and investments can also utilise the power of the metal to fulfil their entrepreneurial ambitions. While urban women are comparatively advantaged in terms of financial prowess, women in rural areas can creatively use gold to source funds to improve their livelihood and income levels. Here, gold loans can empower women entrepreneurs with easier means to access capital for starting or expanding their businesses, with a lot more flexibility.
Whether it is setting up small-scale enterprises such as making papad, tailoring units, dairy farming or handicrafts, women can leverage gold loans to pursue their entrepreneurial aspirations or invest in their children’s education, adding much value to the household income as well as the family’s future.
Rural India has been fancying gold for generations. As per 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 a succour 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 overall community development. However, many rural areas of the country still continue to deal with unorganised and unregulated gold loan providers including loan sharks, losing their precious gold in the process.
Ideally seen, gold loans are a quick and reliable option that can enable farmers to increase the productivity and the value addition of their agricultural assets. By using gold as collateral, farmers can access cost-efficient funds for purchasing seeds, fertilizers, machinery, and other inputs necessary for farming operations. By leveraging their gold holdings, farmers can enhance yield, improve profitability, and diversify their agricultural activities, utilising modern farming techniques and implements thereby lessening their vulnerability to distress sale of the produce and improving their cash inflows.
Preserving wealth
Gold holds immense cultural and social significance in Indian society, often passed down through generations as heirlooms or part of religious rituals and ceremonies. There is an emotional connection and ancestral affinity. No wonder, Indian families are believed to be holding the largest private stash of the yellow metal in the world—valued at a staggering $2 trillion. Gold loans are designed with such sensibilities, allowing individuals to retain the ownership of the gold assets while providing them with much-needed liquidity when needed. This ensures that the cultural heritage embedded in gold is preserved and passed on to future generations even as it provides a source of financial security and empowerment for rural households.
Further, one of the key features of gold loans is the flexibility in repayment options. Borrowers can choose repayment schedules that align with their cash flow cycles, making it easier to manage debt obligations without undue strain. This flexibility ensures that borrowers can repay their loans comfortably, reducing the risk of default and fostering a culture of responsible borrowing and lending.
Also, the transformative impact of gold loans extends beyond individual borrowers to the broader community. As businesses thrive and incomes rise, local economies experience a ripple effect of economic growth and development. Increased economic activity leads to job creation, improved infrastructure, and enhanced standards of living for rural residents. Gold loans thus play a vital role in catalyzing community development and fostering inclusive growth across rural India.
And in times of economic crises, rural communities often become the most vulnerable, facing challenges such as crop failures, rising debt, and reduced income opportunities. In such junctures, gold loans offer a source of stability and resilience, providing individuals and businesses with the financial resources needed to weather the storm. By tapping into their gold assets, rural households can withstand economic shocks, sustain their livelihoods, and emerge stronger from adversity.
In toto, gold loans have emerged as a transformative tool for economies like India, providing the much-needed liquidity, stimulating entrepreneurship, and fostering community. Given our vast reserves, the potential is too significant to ignore; Indian households which account for 27000 tonnes gold (14% of the world’s holding) have only pledged around 5,300 tonnes. According to a CIBIL survey in December 2023, the gold loan industry’s advances stand at ₹7.15 lakh crore, having grown at a CAGR of 19% for the last three years.
Given the freedom and benefits that gold loans offer, Indian households may find it as the right product to meet those innate desires and aspirations.
(The writer is President, Retail Agriculture and Gold Loans, Kotak Mahindra Bank Ltd.)
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