What is the Role of Gold Loans in the Indian Economy?

Gold loans have long been a popular choice in supporting several dreams. Since gold, as a valuable asset, rarely loses its value, a large part of the population prefers obtaining liquid cash by pledging their golf ornaments in times of need. The process of acquiring a gold loan is quick, hassle-free and more beneficial than selling as borrowers can retain the ownership after paying off their loan.

Table of Content:

• Impact of Gold Loan on the Indian Economy

There are several Benefits of Gold Loans 

• While quick processing and immediate capital disbursement are fairly known advantages, a higher LTV, preferential interest rates, minimal paperwork and no credit check make gold loans an attractive option for borrowers. 
• Gold loans are offered at the best interest rates. 
• Compared to other loan options such as home loans and education loans, gold loans don’t come with stipulated end-use restrictions and can be used at the borrower’s discretion. 
• Moreover, they play a pivotal role in shaping economic dynamics, particularly in countries where gold holds both sentimental and economic significance. 

In India alone, where households are estimated to hold roughly 20000-25000 tonnes of gold*, this precious metal can be seen as a safeguard against inflation and economic uncertainty. Unlike other physical assets whose value tends to fluctuate, the price of gold typically stays on top.

Gold loans help foster a more inclusive economic environment. Given the secure nature of the collateral, not only individuals but micro enterprises, small and medium businesses, farmers and people from rural and remote areas also benefit from gold loans. 

Impact of Gold Loan on the Indian Economy

Financial Inclusion

Financial inclusion is pivotal for economic growth. The process of ensuring people from all standings have access to affordable financial services has a multiplier effect on the overall economic output. And in India, a considerable focus has been put on rural and semi-urban areas where formal lending facilities are often limited to local money lenders. Here, gold loans offered by NBFCs help people fulfil their financial requirements. 

• Gold loans provide an option for individuals to access credit facilities without the stringent requirements and the debt trap that comes with traditional money-borrowing methods. 
• Gold is a widely held commodity and a loan against gold is not only ideal for the workforce, entrepreneurs and those employed in the unorganised sector but also for those with no credit history or a regular income source like farmers. 
• Gold loans help develop a more equitable and inclusive economy. 

Economic Growth

Economic growth is closely related to financial inclusion. The easy access to quick credit through gold loans proves beneficial for various financial transitions. 

• The inclusivity is particularly beneficial because ultimately when people borrow against gold, they set in motion a chain of economic exchange boosting demand and consumption of goods and services.
• The immediate liquidity received from a gold loan can be used for various purposes, thus directly affecting demand in the local economy. 
• This boost in the local economy drives demand for manpower, creating jobs and expansion of new businesses. 

Support to Small Businesses and Entrepreneurs

SMEs/MSMEs and micro enterprises are the backbone of the Indian economy. From metro cities to remote villages, these small businesses drive innovation, generating jobs and contributing significantly to employment and the county’s GDP.

However, small businesses rely on constant cash flow and are often faced with challenges in securing finances. This lack of finances can often lead to disruptions in operations efficiency and supply chain. Gold loans offer a suitable credit solution that empowers SMEs/MSMEs to sail through turbulent times. 

Some of the key benefits of gold loans offer to support the long-term sustainability of small businesses include,

• Loan amount flexibility allows businesses to meet urgent capital needs. The loan amount is proportional to the value of the pledged gold, and since financial institutions like Muthoot Finance offer a high loan-to-value (LTV) ratio, businesses can borrow more. 
• Gold loans are secured as gold assets are pledged as security, therefore, lenders typically follow a straightforward and transparent lending procedure, thus saving small businesses a lot of time that they can spend working on improving their business. 
• Small businesses can enjoy the best interest rates on gold loans. Because of the secured nature of these loans, lenders can easily mitigate financial risk, thus offering suitable terms. For small businesses, lower interest rates mean they reduce their borrowing cost and save significantly on interest in the long run.

Gold is a forever metal. Its significance as an inherently valuable commodity in Indian households and for the Indian economy remains undisputed. Throughout generations, it has been revered as a symbol of wealth and social status. Gold loans serve as a vital financial inclusion tool, supporting businesses and boosting the economic trajectory of the nation. 

However, despite all the benefits, gold loans are not devoid of challenges. Market volatility, global trends, geopolitical events, economic conditions as well as the terms proposed by the lender may impact your loan-to-value (LTV) ratio. 

A thorough analysis of the gold loan features, schemes offered by the lender and per gram rate can be helpful in the long run. Muthoot Finance offers suitable terms and the best per gram rates for gold loans which ensure maximum benefit for borrowers and a suitable borrowing experience.