Interview/ George Alexander Muthoot, managing director, Muthoot Finance
Q/ Gold loans are seeing good traction. How do you see the trend?
A/ There are many people who want a gold loan because they are not getting loans from elsewhere. The regulator and the banks have been quite strict on unsecured lending. Personal loans, other than the salaried personal loans, are difficult to get today. Microfinance also has had some problems. And, lending by fintech players has come down.
So, overall, there is a lack of credit availability in the market, especially in the lower levels. People are now increasingly using gold as a collateral. Gold loans are given only against household ornaments, not against bullion or biscuits. People are using it as a quick and easy means for finance. There is lot more visibility than earlier now because gold prices are also going up. The earlier stigma that gold loan was a desperate loan has gone away. People have realised that they have a valuable asset with them, which can be easily monetised.
Q/ So gold, which was otherwise lying idle in lockers, is now a productive asset?
A/ People need money. Farmers need money. A shopkeeper needs money to purchase goods. Businessmen need money to tide over immediate needs. In gold loans, typically the average tenure is only four months. Although we give it for one year, you are free to repay it at any time and you are charged interest only on the actual number of days. So, people take a loan and when they get the money, they quickly repay it because they want the ornaments back. Around 98 per cent customers take it back in one year.
Q/ What is the scope of growth in this business?
A/ About 50-60 years ago, only the south Indian finance companies and banks were giving gold loans. When we went to north India 40 years ago, people did not know the concept of organised gold loan. We faced a lot of challenges. People were reluctant. We ran campaigns, saying what is lying in your locker will be safe in our locker. Eventually, we were able to convince people.
Today, even those in the upper layer of society, not just the lower middle class or the poor, are using gold for a quick bridge finance.
The gold [in the households] is estimated to be about 25,000 tonnes, and the organised market is only 3,000 tonnes. Our company has about 200 tonnes. People have gold with them; they should start using it. Gradually it will come out.
Q/ What’s your outlook on gold prices?
A/ With the uncertainties in the international market, gold prices will remain elevated for some more time.