Gold loan industry has been prevalent in the society since earlier times. As there was no involvement of any government institutions most of the loans were provided by unorganized players such as money lenders and pawn shops against gold jewellery, gold coins or gold bars as security. A few decades ago, the whole gold loan market was ruled by unorganized players who merely provides loan against gold at high interest rates. There is a dominance of unorganized market which accounts for around three-fourth of the total gold loan market in the country.
Over the past decade, the scenario has changed with the entrance of banks and NBFCs i.e. organized players which have started issuing loans against gold at cheaper rates. It has emerged as one of the most reliable and convenient source of credit for low income individuals and households in comparison to other loans such as personal loans, loans from microfinance institutions, loans from self-help groups or community borrowing. However, organized gold financing companies are providing services in the urban areas. The urban population has realized the potential value of gold and has started using gold to meet their liquidity needs. This has led to the growth in the organized gold loan market.
Speculating the growth prospects of Indian Gold Loan industry, Shushmul Maheshwari, Chief Executive, RNCOS said that since the gold loan market is highly unorganized, the organized segment has a huge potential for growth through disassemble of the unorganized segment. A bigger, better and more well-organized network of branches would facilitate the organized segment target this growth area.
To tap the growing market, numerous major players such as Muthoot Finance, Muthoot Fincorp, Manappuram Finance Limited etc are continuously innovating and developing their brands to best suit the Indian market. In order to standardize the valuation and make it more transparent to the borrower, Reserve Bank of India has decided that gold jewellery accepted as security/collateral will have to be valued at the average of the closing price of 22 carat gold for the preceding 30 days as quoted by the India Bullion and Jewellers Association Ltd.
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