Small businesses will opt for gold loans to restart business

Traders, shopkeepers and small businessmen will be the biggest takers of gold loans to restart their operations after the lockdown, according to leading gold non-banking finance companies (NBFCs) such as Manappuram Finance and Muthoot Finance.

Gold loans for business purposes are mostly used by small businesses as short-term working capital for stocking.

With gold prices hovering around Rs 47,000 per 10 gm, small businesses will need to take loans to resume operations, said industry executives.

George Alexander Muthoot, managing director of Muthoot Finance, told ET: “They will take gold loans for bridge financing to restart their operations. Due to the lockdown, payments have not come to small businesses, shopkeepers and traders. So they will need money, for which they will pledge their gold for taking loans. Nearly 75% of our customers are small shopkeepers, traders and small businesses.”

Muthoot said some of the company’s branches, which are not in hotspots or containment areas, have started functioning. “Customers are slowly coming in. However, the flow is less as we have to follow social distancing norms. Our expectation is that gold loan demand will be more from northern India, western India and eastern India. At present, we have opened 1,300 branches,” he said.

The NBFC is looking at a 15% growth in gold loan business in this financial year.

VP Nandakumar, MD of Manappuram Finance, said: “Our usual assessment has been that about 30% of our customers belong to the small business category, mostly small shopkeepers, vendors and traders, self-employed tradespeople like carpenters, electricians and others. Whether this composition undergoes any changes in the post-lockdown scenario is something too early to tell given that our branches resumed operations only recently. What is usually about 30% may go up by three or four percentage points.”

Gold retailers take gold loans more than other players in the business, said Nandakumar.

“In the situation we are in now, with jobs drying up and incomes affected, we may see an uptick in demand for gold loans for purpose of consumption and meeting family needs. The next significant contributor is likely to be petty traders and small shopkeepers as they seek to get back on their feet,” said Nandakumar.

Like Muthoot Finance, Manappuram Finance is expecting growth of 10-15% in gold loans this fiscal.

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