The government’s decision to make hallmarking of gold jewellery mandatory has eased the rigorous and often doubtful process of jewellery evaluation for gold loan companies. This will help customers get higher valuation of pledged jewellery items, said M G George Muthoot, chairman, of India’s leading gold loan company, Muthoot Finance Ltd, in an interview with Dilip Kumar Jha. Excerpts:
How will mandatory hallmarking of jewellery benefit gold loan company?
Mandatory hallmarking of gold jewellery will improve not only the quality of the precious metal but also enhance the confidence of customers while buying. This would also bring in a lot of transparency in gold jewellery business. We as a gold loan company would benefit from the increased demand for gold in this country post BIS mark made it compulsory. This would also make our job easy while evaluating gold, which comes as collateral. As the quality of the gold improves, we can lend more per gram of gold pledged with us, this would substantially adds up to our loan portfolio in the coming quarters.
What are the new trends you envisage in gold loan business?
Gold loan has emerged as a convenient source of fund as against a distressed product. This product has been attractive for all classes of people like youth, office going and old people in this country. As this loan is any day better than personal loan, more and more people are using this option. Many of our customers are coming from local pawn brokers which shows how the pie of organised gold loan companies is increasing as against unorganised money lenders.
Looking at the trend, banks have also started focusing this as one of their strong businesses which would further expand the market in terms of geography and size.
With much wider presence in smaller towns and focus on unbanked people, what other role NBFCs like you can play?
NBFCs at large have been catering to various needs of the customers in this country. These companies always have specific focus areas like gold loans, vehicle financing, infrastructure equipment financing etc. The only instrument people understand in rural and semi urban areas in this country is buying gold as a security to take care of their future needs, be it marriage, children's education, investment for farming, medical expenses etc. This has made couple of NBFCs to focus on this area to help people in rural and semi urban areas to take advantage of the gold, the people of this country is presently holding. We have been successful in catering to people from all strata. The gold loan companies, especially the bigger NBFCs like Muthoot and Manappuram, also had a presence among the excluded, though to a lesser degree than the local pawn broker.
With out wide penetration, easier and transparent terms and higher quantum of finance per gram of gold, their status in the organised sector, is and always has been complementary to the banking system. The larger players in the field have more branches more than some of the scheduled banks, and these branches are spread all over the country including rural and remote areas.
Where does inclusive growth in India stands today on banking front?
In India the lack of access by certain segments of the people to formal banking and finance has not been a matter of great concern. The excluded, usually the marginal farmer, the migrant labour, the domestic worker, the urban slum dweller and the very poor, resorted to the services of a parallel unregulated financial system of chits, local pawn brokers and money lenders.
Various internal and external compulsions lead to bank computerisation and by the year 2000, all banks were on Total Bank Mechanisation (TBM). The sophisticated bank employees, who were often from other states, the new posh ambiance of the branches and the fear of being embroiled in procedures they could not understand, kept even those who had saving potential away from the banking system.
What are the principal barriers for reaching the unbanked in this country?
The principal barriers that kept over 41 per cent of the population financially excluded (61 per cent in rural areas) can be generally listed as barriers to physical access, (access exclusion), high costs and penalties, (price exclusion), inappropriate/complicated products from the perspective of the target group, (marketing exclusion) and self exclusion through ignorance / perceptions of anticipated rejection. RBI brought in the no frills accounts, general purpose credit cards and micro insurance to address price and marketing exclusion. It introduced the business correspondent and business facilitator model, technology and liberalised branch authorisation to address access exclusion, and financial literacy initiatives to overcome self exclusion.
Micro insurance covered the minimum protection element. All the above measures have succeeded in widening the net of the financially included to a great extent. RBI data prove the incredible increase in numbers. The benefits of CBS now reach even the smallest SB operated through BCs and the migrant worker can remit his earnings home at minimum or no cost.
What are the innovative packages you offer your customers?
Again, the gold loan companies offer several packages suited to individual customer needs. We were the first player in this gold loan segment to come out with specific product for farmers, which will typically have a tenure of nine months, which typically matches with the season of harvesting.
We are also offering loans customised to SMEs and other small players who are taking loans for their working capital requirements.