Gold is a valuable asset for rural households in India, which holds most of the country’s gold. However, demand for gold loans in rural areas is expected to be affected by inflation and unpredictable crop seasons, which can impact farmers’ income. The other consumer segment driving gold loan growth is MSMEs in semi-urban areas that need to fund their working capital. With over 90% of the market still untapped, there is a significant opportunity to expand into these regions of India.
Gold holds a significant place in India’s socio-economic culture. It is valued not just as an asset but also as a safeguard against inflation and a quick source of cash, especially for rural households. To meet short-term financial needs, people often use their gold jewelry as collateral for loans. However, there is a social stigma around taking loans in many Indian communities, as it can be seen as a sign of financial difficulty. This stigma is even stronger when the loan involves pledging personal or heirloom gold. Despite this, gold loans have played a crucial role in promoting financial inclusion in India.
5 Reasons that Make Gold Loans the Preferred Option in Rural India
Savings
Saving is a natural habit for Indians, but it varies based on where they live. Urban Indians have access to a wide range of modern financial services, while rural Indians still prefer traditional options. Gold loans are especially popular in rural areas due to their cultural importance. People in rural India invest in gold, not just as a form of savings but also as an asset that can be used to meet unexpected financial needs.
No credit history.
A gold loan is a secured financial product where the borrower’s credit history isn’t very important. This makes it a popular choice for rural Indians during financial crises.
NBFCs growing rural penetration with trust
NBFCs (Non-Banking Financial Companies) have successfully expanded their reach into rural markets, significantly boosting the availability of gold loans. This growth has helped reduce the reliance of rural customers on informal lenders, who often charge higher interest rates. Trust in NBFCs has been built through digital transparency, asset safety, affordable interest rates, and reliable customer service.
Appreciating liquid assets
Gold is an ever-appreciating liquid asset. And that makes gold a more attractive asset over other traditional choices like land. The preference of gold as an asset in turn makes a gold loan a better proposition.
Impetus to rural and agri-based economies
As part of the Indian government’s impetus on agriculture and rural industries, financial institutions offer gold loans at a lower interest rate to the farmers and owners of agricultural land.
Gold loans provide easy access to credit for rural households, micro, small, and medium enterprises (MSMEs), and other underserved segments who are new to borrowing. The quick disbursement of funds and the simple loan application process have attracted many borrowers. The rising volume of gold loans is helping farmers and also empowering a new generation of entrepreneurs, including women in rural and underserved areas.
Arvog is a new-age, AI/ML-powered, customer-centric finance company that makes digital lending quick, efficient, and easy. We see worth in lending wings to people’s aspirations, hopes and dreams. We believe purpose-driven credit can be a true-life enabler. Arvog is here to lend a helping hand, with affordable loans designed specifically for those who need them the most.
Arvog empowers NBFCs and fintechs with the tools and solutions they need to get fast access to credit, thus building more resilient and confident communities.
