Gold, for thousands of years, has been viewed as an investment option and this trend continues even today. In fact, India is considered to be one of biggest consumers of gold, second only after China, and according to the World Gold Council, Indian households have stocked nearly 24,000 to 25,000 tonnes of gold.
Of this, less than 10 per cent of gold is playing out in the organised market, including gold loan companies. Also, in a recent survey conducted by India Gold Policy Centre (IGPC) at the Indian Institute of Management, Ahmedabad (IIM-A), over 75 per cent of Indian households confessed to owning gold in some form or the other.
With the pandemic bringing forth its own set of challenges in the last few years, most of us have suffered in some form or the other. For many, especially low-income households, unbanked customers, MSMEs and SMEs, gold emerged as a safe haven, when big institutions and banks held onto their purses. Thus, the demand for gold loans has been strong even in these trying times, and we expect the momentum to continue as businesses start to revive, alongside the gradual healing of the economy.
Further, the pandemic has also rapidly increased the digitisation process across sectors, and gold loan financing sector was no exception. The expectations from consumers are high and it is up to the lenders to make use of the available technology at their disposal and innovate to meet customer demands. Super apps and other digital innovations like availing loans and other banking facilities from the comfort of one’s own home, which earlier involved heaps of paperwork and branch visits, have been on the rise.
Technology and blockchain are not just hot trends in the market, but they will have an impact across sectors and industries, too, including the gold loan industry. Digital gold, and gold in the form of ETFs, SGBs and gold-oriented mutual funds, have seen a rapid increase in investments, especially among millennials.
In the future, digital gold will likely see a further hike in the number of investors across age groups. However, people of the older generation might hesitate and take longer to try their hand at digital gold because of the sentimental value attached to gold ornaments in Indian households. Given the absence of direct ownership of gold, fluctuation in gold spot prices, and a limit to the trading hours, this shift will be gradual.
When it comes to factors like purity, lack of designing costs, uniform pricing and a much more flexible way to invest, digital gold has an upper hand. Further, customers who are sceptical can also purchase digital gold in much smaller quantities, to test the waters before making a bigger commitment.
The future of the gold loan industry is linked to further digital integration of technology and new innovations. In India, the use of digital wallets and online payment options like UPI have drastically increased. In the future, products like gold-secured credit cards and gold wallets are likely to enter the market, too. In fact, many players had earlier introduced a card facility and are working towards relaunching the same in the near future.
Recently, many fintech players, including mobile e-wallet companies and brokers, have initiated gold wallet facilities for their customers, allowing them to buy certified and pure 24-karat gold.
They are able to make rapid and easy money transfers and get hassle-free micro-loan services in no time. All we would need in addition would be a regulatory body overseeing the developments and progress of such initiatives, which can also inspire further innovations in the sector.
Given the good prospects of gold loan sector, we see many players offering gold loan and the competition is rising; however, this is not a dampener and is only a testament to the huge opportunity the sector has to offer. In fact, Muthoot Finance has seen good growth in gold loans in Q4 FY22, and firm gold prices have further helped on collateral safety side. We also observe that customers who were earlier reluctant to take a gold loan are now more open to availing the same, and are considering it as an alternative source of finance.
The industry players are also coming up with innovative solutions, and there is a constant need to keep pace with technology. The challenges posed by the pandemic, along with the disruption in the geo-political climate, has left us with an uneven economic recovery. The government, along with the RBI, have done a fair bit to aid economic recovery, and we see a pick-up in the demand for gold loans at the industry level. We believe that there is huge opportunity in the gold loan segment still to be tapped in the years to come.
The writer is the MD of Muthoot Finance