Small borrowers raise their loan targets as gold prices shoot through the roof

MUMBAI: Banks shut their doors on small businesses; gold loan companies have laid out a red carpet for them. With gold hitting a record high, many small and medium enterprise (SME) owners are finding that their family stock of the yellow metal is excellent collateral.

There's been a 30-35% rise in daily gold loan applications and disbursements, top executives told ET. Muthoot FinCorp and Muthoot Fin are seeing a huge surge in assets under management.

"Higher gold prices have helped borrowers get maximum value for their gold," said John Muthoot, chairman and managing director, Muthoot Fincorp. As unsecured loans dried up post-lockdown and during the moratorium, borrowers moved to gold loans, he added.

Muthoot Fincorp has disbursed Rs 9,000 crore in the past three months to nearly 20 lakh customers, of which a large majority are from rural and semi-urban micro enterprises. In April, it launched a scheme for smaller entrepreneurs.

Local gold prices hit a record high, surpassing the psychological market ceiling of Rs 50,000 per 10 gram. Even some banks are preferring gold as collateral in sanctioning even working capital loans.

George Alexander Muthoot, managing director, Muthoot Finance, said, "We expect to achieve 15% loan growth target set for this fiscal before Covid-19. We are asking customers to map bank accounts with us, which mitigates business threats that may arise out of extended lockdown."

Umesh Mohanan, chief executive, Indel Money, said, "Cash flows in local markets reduced due to the pandemic, triggering higher demand for gold loans." The Kerala-based company has launched India's first long-term gold loan scheme, with a two-year tenure.