Midaa Touch. Muthoot Group’s path to success is paved with gold

It was gold loans that made the 134-year-old Muthoot Group’s fortune. And during the pandemic it was gold loans that steadied the boat for Muthoot Finance, the NBFC which had been rapidly diversifying into other segments such as home loans, personal loans and vehicle financing — segments that were hit last year.

Branching out

Though the pandemic may have checked the progress of Muthoot Finance into other segments with its other loans portfolio shrinking (it had ₹5.47 lakh crore of gold loans under management in its portfolio in September contrasted to ₹4,647 crore of other loans, a big decline from ₹8,382 crore the previous year), George Alexander Muthoot, Managing Director, Muthoot Finance, is very clear that the aim is to diversify.

George Muthoot, MD, Muthoot Finance

“We aim to be a diversified financial supermarket offering varied financial services apart from gold loans and become a customer-centric businesses organisation enabled by technology in the long term,” he says. He says the branches are becoming one-stop points for the customer, where they can get loans for anything, be it gold loan, personal loan, home loan, money transfer, insurance, gold coins, consumer durables, two-wheeler or four-wheeler. The focus being to grow the average business generated at each of its 5,000-odd branches. It is a fact that the lockdowns imposed by various governments had affected normal functioning of branches, hitting loan disbursal and recovery of interest. The RBI’s six-month moratorium had affected the cash flows to some extent of repayment on the due date.

“With the economy returning to normalcy, the demand for credit from the MSME sector has grown and we are hopeful of recording good growth during the current financial year,” he says.

Three things have happened at the group. One, it has diversified its products, offering services in various segments by cross-selling of products. Muthoot Homefin, money transfer, forex, Muthoot branded gold coins, Muthoot Hospitality are few of the diversified business activities. “Since we have a large database of our gold loan customers, cross-selling of these products is easy and customers also find it convenient to interact with a known and credible organisation,” explains Muthoot.

The second thing is the relentless expansion out of Kerala. Now 97 per cent of its business comes outside of its home State. Sixty per cent of its 5,000-odd branches are in Tier 3 and 4 cities, most of them in unbanked areas.

A third focus has been the increasing digital approach, accelerated by the pandemic. “We have introduced several digital initiatives such as mobile app, POS, online gold loans, gold loans through prepaid cards for disbursement and repayment to cater to tech-savvy customers,” says Muthoot.

Gold glitters

While the company may be spreading its financial products post-pandemic, the opportunity has been more in gold loans since this is considered to be the most easy and quick source of credit to the business community. According to the Managing Director, the taboo attached to gold loans is a matter of the past.

“Gold loans always have acceptance among the business community as a bridge loan to meet their liquidity requirements pending loan disbursal by banks,” says Muthoot.

India is one of the largest consumers of gold with an estimated stock of over 25,000 tonnes, in which 65 per cent belongs to the rural community. Because of the emotional value associated with the household jewellery, people rarely sell their gold to meet their immediate financial needs. As an alternative, people pledge their ornaments as collateral and secure short-term loans. The relative ease in obtaining loan approval has boosted the popularity of gold loans. Still 60-70 per cent of the gold loan market is met by the informal sector, which is controlled mainly by pawn brokers and local money lenders. Hence there is enormous scope for gold loan lending for NBFCs and banks.

According to Akshay Agarwal, Managing Director of Kochi-based Acumen Capital Services, Muthoot Finance’s gold holding is among the largest private holdings in the world. The loans that Muthoot offers are typically bridge loans with an average period of just four months. Given that it has a 70 per cent average haircut, it is possibly one of the safest and most stable bets in the listed NBFC space, he says.

India’s organised gold loan industry is expected to reach ₹4.62 trillion by 2022. “We are the trend-setter among NBFCs in gold loan lending — continuously improvising new schemes to suit the needs of our target customers.”

He points out that since the company secured an RBI license to function as an NBFC in 2001, it has grown its AUM (assets under management) size considerably – from ₹5 billion in 2005 to ₹541 billion in March 2021. As the saying goes, “well begun is half done”, asserts Muthoot.