New Delhi [India], January 17 : In anticipation of the upcoming budget, George Alexander Muthoot, Managing Director of Muthoot Finance, has outlined key recommendations to leverage the idle gold holdings in Indian households.
According to Muthoot, with approximately 25,000 tonnes of gold lying dormant, Muthoot Finance proposes strategic measures that can transform this inert asset into an immediate and reliable source of financing for personal or business needs.
Muthoot Finance emphasizes the significance of granting 'priority sector status' to gold loans, asserting that this move would unleash a plethora of benefits for the bottom of the pyramid and enhance financial inclusion.
The proposal envisions the inclusion of all micro gold loans (under Rs 50,000), irrespective of whether provided by banks or non-banking financial companies (NBFCs), under the priority sector.
This would facilitate increased funding for gold loan NBFCs, particularly benefiting small borrowers, self-employed individuals, and micro-business owners.
"Typically, small borrowers require loans under Rs 50,000 (approximately 20 grams of gold collateral) for short durations like a year. Gold loan NBFCs can play an important role in fulfilling the needs of small borrowers and addressing their finance or working capital needs," stated George Alexander Muthoot.
Additionally, the proposal underscores the crucial role of gold loans against jewellery as a vital funding source for Micro, Small, and Medium Enterprises (MSMEs).
Currently, gold loans provided by banks to farmers enjoy priority sector status, but a similar status is not extended to gold loans provided by NBFCs.
Removing this distinction could enhance the accessibility of funds for gold loan NBFCs and, subsequently, contribute to the growth of MSMEs.
Muthoot envisions a revolutionary financial product - a 'gold-linked credit line via UPI' - tailored for the common man.
This innovative credit line aims to address monthly short-term finance needs, providing an alternative to keeping substantial balances in savings accounts or resorting to credit cards or personal loans.
The proposal requires extending UPI linkage by NBFCs, enabling them to offer a secure credit line to the common man. Unlike traditional credit cards, this product would operate as a secured credit, attracting lower interest rates (between 12 per cent-18 per cent) compared to the higher interest rates (approximately 36 per cent) associated with credit cards.
As the budget season approaches, Muthoot Finance's recommendations underscore the untapped economic potential within Indian households' idle gold reserves, providing a roadmap for inclusive growth and financial empowerment.
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