The Gold and the Loans !!

With the recent surge in the markets, we saw a big impetus in the books of Gold Loan Financing companies ... The big Ms - Mannapuram n Muthoot finance especially. Even the markets are going ga-ga over the performance. So what exactly is the business model of these Gold Loan financing companies ? 

Many of these companies have been quoting astronomical growth figures, supported by unrelenting demand from a public increasingly looking at gold more as an investment than as a piece of jewellery. Something which has proved to be a big deviation from the otherwise socially conservative Indian culture and the 'whole family jewels need to be safeguarded' issue. Its as strange as Nirupa Roy with extravagant makeup and short skirt partying in Hard Rock Cafe. 

So basically the model works in a very simple manner. Gold jewellery as well as gold in other forms is collected and taken to one of these Gold loan financing companies and kept as collateral for small term say 6 months to one year. In return loan amount upto as high as 10-15 lakhs is transacted to the investor and the gold is kept safe with the organization. The gold is returned once the payment is made. So yeah .. no rocket science.

One more fact to ponder is that what do these organizations do with the gold jewellery in the mean time? Well it just stays with them in the safe lockers and no, it is neither showcased on their public mannequin Bappi Lahiri's body nor invested further to cover the opportunity cost.

Conveniently speaking, these gold loan financing companies are working more on the lines of probability of default. With the yellow metal in sight, they will obviously look towards the investors to default so that the 'Precious' can be there's to keep. Thats why all the terms and conditions are super lucrative which make the risk averse of all drool away in greed. As opposed to 12-15% interest rate on personal loans, people are still opting for 20-24% gold loan rate as it is still better than 35 odd % offered by the unorganized moneylenders. Enough of the numbers coz numbers do not justify anything, ask poor Wasim Jaffer !! Bad Bad Srini uncle !!

Another thing which acts in the favour of these gold loans is that you get the loan with the minimum of fuss and that too in a jiffy. It is said that the loan amount is said to be transferred in just an hour. Some gold loan financing institutions guarantee transfer of money in 6 minutes flat. Thats a laymen equivalent of 6 cups of ready to eat noodles. Phenomenal !!

Secondly, minimal paperwork is what is asked for. Just a photo ID and one pan card copy here or passport copy there should do the trick. No credit history is asked. Infact there is a huge advantage if the investor defaults. It works well for those people to whom regulated banks and NBFC wont give loans. Again a win-win for the parties involved.

The next and one of the decisive fact about these Gold loan financing companies is the penetration of the same across India. Each nook and corner seems to be having an office of a gold loan company. There might not be a convenience store but gold loan finance we have !! No wonder the market share of the Big Ms has risen to almost 1/3rd of the organized market. Let the celebrations begin !!

Finally these companies are leaving no stone unturned. Roping in celebrities, regional or even the Tees Maar Khan of Bollywood for promotions is like the ultimate step. And yes, in this celebrity inspired innocent India its working. So we leave you with one glimpse of the brand ambassador of a gold loan company, telling you what to do to the worries once you are their member - A big Bye Bye !!