<TABLE border=0 cellSpacing=0 cellPadding=0 width="100%"><TBODY><TR><TD height=8></TD></TR><TR><TD class=msgtxt><TABLE border=0 cellSpacing=0 cellPadding=0 width=452><TBODY><TR vAlign=top><TD></TD></TR><TR><TD vAlign=top width=452 colSpan=2>Published September 30, 2009
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Gold gaining currency as loan collateral
Gold loan firms thrive as unsecured credit dries up
<TABLE class=storyLinks border=0 cellSpacing=4 cellPadding=1 width=136 align=right><TBODY><TR class=font10><TD width=20 align=right>
</TD><TD>Email this article</TD></TR><TR class=font10><TD width=20 align=right>
</TD><TD>Print article </TD></TR><TR class=font10><TD width=20 align=right>
</TD><TD>Feedback</TD></TR></TBODY></TABLE>
(KOCHI, India) Indians own more gold than the citizens of any other country.
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
</TD></TR><TR class=caption><TD>Handy financial tool: Gold loans allow families to leverage some of their most valuable assets for productive uses, say analysts </TD></TR></TBODY></TABLE>They use the glittering metal as ornaments to flaunt family wealth, as a source of retirement savings and as insurance against calamities.
But lately, gold has become something else: collateral, and the basis of one of the country's fastest-growing businesses, gold loans.
While pawning the family jewels would be a sign of distress in the West, trading gold for cash increasingly is viewed in India as the equivalent of taking out a home equity loan to expand a business or simply to buy things.
'This is the rural credit card,' said VP Nandakumar, chairman of the Manappuram Group, one of the country's biggest gold loan companies. 'This is the only way really that someone gets an instant loan within three minutes.' But loans against gold are also a measure of how immature - and restricted - India's credit markets are.
<TABLE border=0 cellSpacing=0 cellPadding=5 align=left><TBODY><TR><TD bgColor=#ffffff>[FONT=Geneva, Helvetica, Verdana, Arial, sans-serif]<!-- REPLACE EVERYTHING IN CAPITALS WITH YOUR OWN VALUES --><TABLE class=quoteBox border=0 cellSpacing=0 cellPadding=0 width=144 align=left><TBODY><TR><TD vAlign=bottom>
</TD></TR><TR><TD bgColor=#fffff1><TABLE border=0 cellSpacing=0 cellPadding=0 width=124 align=center><TBODY><TR><TD vAlign=top>Gold loans made by banks and finance companies have lower interest rates - 14 to 30 per cent - than pawnbrokers and money lenders, and their businesses are regulated.
</TD></TR><TR><TD vAlign=top>
</TD></TR></TBODY></TABLE></TD></TR></TBODY></TABLE>Most Indians, especially those working in the informal economy, which accounts for 92 per cent of the country's 400 million workers, have few choices when they need to borrow money: they lack other collateral or have no documents to prove their incomes.
Gold loan firms have also benefited from the financial crisis. In the last year and a half, many lenders have stopped making unsecured personal loans here because of rising defaults in India.
It is now 'a lot more palatable for banks to give loans against gold jewellery,' said Viren H Mehta, a national director at Ernst & Young India. As a result, for borrowers like Vishwanathan CR Pai, a rickshaw repairman, gold loans are an essential financial tool.
He frequently hands over his family's jewellery at Muthoot Finance to pay operating expenses for his business. He often borrows 10,000 to 25,000 rupees (S$295 to S$738) to buy spare parts, repaying the loans when customers pay him. He pays 15 to 18 per cent interest.
Mr Pai said he couldn't get a business loan from banks because they wanted documentation of his income. But his customers, who earn as little as US$100 a month, don't do cheques and invoices.
'It is very easy here, there are no formalities,' Mr Pai, 29, said about borrowing at Muthoot.
As recently as a decade ago, people like Mr Pai who needed cash had to turn to relatives or moneylenders. India's mostly state-controlled banking system rationed credit tightly, lending mostly to the wealthy or to industries with government backing.
Pawnbrokers and money lenders have long operated in India's back alleys, making loans against jewellery to families in distress, at interest rates of 30 per cent or more. But gold loans made by banks and finance companies are different. Rates are lower - 14 to 30 per cent - and their businesses are regulated.
There are no publicly available aggregate data about gold loans, but finance companies that specialise in them are growing fast.
Manappuram, a pioneer in the business, made US$730 million in gold loans last year - up from US$397 million a year earlier. Muthoot Finance, a privately held firm, says its lending is growing at 60 per cent a year.
By contrast, total outstanding bank loans to the private sector increased 16 per cent last year, year over year, and have been essentially flat so far this year.
Though the financial system here has become more inclusive, it still doesn't reach many people. More Indians, for instance, own gold than own stocks or mutual funds.
The total value of gold in private hands is roughly 60 per cent of deposits in banks, according to data from the World Gold Council and India's central bank. A 2006 government survey found that less than 41 per cent of Indian households had bank or post office savings accounts.
By contrast, 92 per cent of American households have bank accounts. . -- NYT
[/FONT]</TD></TR></TBODY></TABLE></TD></TR></TBODY></TABLE>
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Gold gaining currency as loan collateral
Gold loan firms thrive as unsecured credit dries up
<TABLE class=storyLinks border=0 cellSpacing=4 cellPadding=1 width=136 align=right><TBODY><TR class=font10><TD width=20 align=right>
</TD><TD>Email this article</TD></TR><TR class=font10><TD width=20 align=right>
</TD><TD>Print article </TD></TR><TR class=font10><TD width=20 align=right>
</TD><TD>Feedback</TD></TR></TBODY></TABLE>(KOCHI, India) Indians own more gold than the citizens of any other country.
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
But lately, gold has become something else: collateral, and the basis of one of the country's fastest-growing businesses, gold loans.
While pawning the family jewels would be a sign of distress in the West, trading gold for cash increasingly is viewed in India as the equivalent of taking out a home equity loan to expand a business or simply to buy things.
'This is the rural credit card,' said VP Nandakumar, chairman of the Manappuram Group, one of the country's biggest gold loan companies. 'This is the only way really that someone gets an instant loan within three minutes.' But loans against gold are also a measure of how immature - and restricted - India's credit markets are.
<TABLE border=0 cellSpacing=0 cellPadding=5 align=left><TBODY><TR><TD bgColor=#ffffff>[FONT=Geneva, Helvetica, Verdana, Arial, sans-serif]<!-- REPLACE EVERYTHING IN CAPITALS WITH YOUR OWN VALUES --><TABLE class=quoteBox border=0 cellSpacing=0 cellPadding=0 width=144 align=left><TBODY><TR><TD vAlign=bottom>
</TD></TR><TR><TD vAlign=top>
</TD></TR><TR><TD vAlign=top>
</TD></TR></TBODY></TABLE></TD></TR><TR><TD height=39>
Gold loan firms have also benefited from the financial crisis. In the last year and a half, many lenders have stopped making unsecured personal loans here because of rising defaults in India.
It is now 'a lot more palatable for banks to give loans against gold jewellery,' said Viren H Mehta, a national director at Ernst & Young India. As a result, for borrowers like Vishwanathan CR Pai, a rickshaw repairman, gold loans are an essential financial tool.
He frequently hands over his family's jewellery at Muthoot Finance to pay operating expenses for his business. He often borrows 10,000 to 25,000 rupees (S$295 to S$738) to buy spare parts, repaying the loans when customers pay him. He pays 15 to 18 per cent interest.
Mr Pai said he couldn't get a business loan from banks because they wanted documentation of his income. But his customers, who earn as little as US$100 a month, don't do cheques and invoices.
'It is very easy here, there are no formalities,' Mr Pai, 29, said about borrowing at Muthoot.
As recently as a decade ago, people like Mr Pai who needed cash had to turn to relatives or moneylenders. India's mostly state-controlled banking system rationed credit tightly, lending mostly to the wealthy or to industries with government backing.
Pawnbrokers and money lenders have long operated in India's back alleys, making loans against jewellery to families in distress, at interest rates of 30 per cent or more. But gold loans made by banks and finance companies are different. Rates are lower - 14 to 30 per cent - and their businesses are regulated.
There are no publicly available aggregate data about gold loans, but finance companies that specialise in them are growing fast.
Manappuram, a pioneer in the business, made US$730 million in gold loans last year - up from US$397 million a year earlier. Muthoot Finance, a privately held firm, says its lending is growing at 60 per cent a year.
By contrast, total outstanding bank loans to the private sector increased 16 per cent last year, year over year, and have been essentially flat so far this year.
Though the financial system here has become more inclusive, it still doesn't reach many people. More Indians, for instance, own gold than own stocks or mutual funds.
The total value of gold in private hands is roughly 60 per cent of deposits in banks, according to data from the World Gold Council and India's central bank. A 2006 government survey found that less than 41 per cent of Indian households had bank or post office savings accounts.
By contrast, 92 per cent of American households have bank accounts. . -- NYT
[/FONT]</TD></TR></TBODY></TABLE></TD></TR></TBODY></TABLE>
