According to fresh data from the Reserve Bank of India (RBI), gold loans have surged 122% in June, signalling a major shift in borrowing preferences among small borrowers. Many are choosing to pledge gold rather than approach microfinance institutions (MFIs), which have tightened their lending norms.
Key Findings from RBI Data
122% Year-on-Year Growth: Gold loan disbursements have more than doubled compared to the same period last year.
Borrower Profile: The surge is mainly driven by small borrowers and micro-entrepreneurs in rural and semi-urban areas.
Reason for Shift: Lower interest rates and simpler procedures make gold loans attractive compared to MFIs’ stricter compliance requirements.
Why Borrowers Prefer Gold Loans
Lower Interest Rates: Banks and NBFCs typically offer gold loans at much lower rates than MFIs charge for microcredit.
Quick Disbursal: Gold loans often require minimal paperwork and can be processed within hours.
Flexibility: Borrowers can repay in flexible instalments, often with bullet repayment options.
Impact on Microfinance Institutions
Stricter lending norms introduced to improve credit quality have increased documentation and eligibility hurdles. This, coupled with higher interest rates, is pushing smaller borrowers to alternative sources such as gold-backed credit.
Broader Economic Significance
The trend reflects the role of household gold as a “hidden asset” supporting small businesses and families during tight liquidity. It also signals how shifts in regulation can re-channel demand across credit segments.
Conclusion
Gold loans are emerging as a preferred lifeline for small borrowers. With lower interest rates, faster processing, and a fallback asset in hand, pledging gold is increasingly trumping microfinance in rural and semi-urban credit markets.
FAQ Section
Q1. By how much have gold loans increased according to RBI data?
They have surged 122% in June compared to the same period last year.
Q2. Why are small borrowers shifting from microfinance to gold loans?
Because gold loans offer lower interest rates, faster disbursal, and fewer eligibility hurdles than MFIs.
Q3. Who is driving the surge in gold loans?
Small borrowers, micro-entrepreneurs, and rural households are the main contributors.
Q4. What impact do stricter MFI norms have on borrowers?
They make microcredit harder to access, pushing borrowers to alternative credit sources like gold-backed loans.
Q5. Are gold loans riskier for lenders?
They are generally less risky because gold acts as collateral with easily verifiable value.
Published on : 17th September
Published by : SMITA
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