Gold loan non-banking finance companies (NBFCs) have sought ‘priority’ sector status for eligible gold loans, including microloans, loans to farmers and micro businesses in the upcoming budget as taking a gold loan against household jewellery is one of the most important funding sources for MSMEs, small businesses, individual and women borrowers.
“Many farmers, small business owners/shopkeepers also resort to gold loans to meet their working capital needs,” said George Alexander Muthoot, managing director of Muthoot Finance. “Gold loan NBFCs serve the underserved segment or the bottom of the pyramid as this segment frequently borrows less than ₹50,000 and the tenure of these loans is also typically for less than 12 months.”
The gold loan sector has witnessed a steady growth in demand and disbursal due to a change in perception towards pledging of gold and presents positive market and consumer sentiment towards economic revival.
“As gold loan has emerged as an effective tool to avail credit for the individuals and businesses, especially in the rural parts of the country, the government needs to propose measures to facilitate liquidity infusion to the organised gold loan segment,” said Umesh Mohanan, executive director & CEO of Indel Money. “The budget proposals should support the organised gold loan companies so that they can expand their market outreach and penetration to address credit under-penetration in certain business and consumer segments.”
In addition, the budget should propose an effective co-lending framework to encourage stronger collaboration between gold loan companies and banks when it comes to addressing unmet credit demand.
Muthoot said the broad focus areas to watch would be a push towards capex spending, support to investment activity/corporate India and support to the most impacted sectors like MSMEs and small businesses.