Gold Loan NBFCs: How have they emerged as the catalysts for MSME growth in India?

MSMEs are heavily reliant on gold loan NBFCs for their working capital needs and for India to scale the ambitious goal of $US 5 trillion economy, MSMEs play a crucial role contributing immensely to the country’s GDP of over 30 per cent.

Growth in loans given by non-banking financial companies (NBFCs) to the MSME sector was more than three times that of banks, benefitting from their ability to offer customised financing solutions, said the Reserve Bank of India (RBI) report released in December 2023.

And within the NBFC space, gold loan NBFCs have come off aggressively in proving to be the catalyst spurring MSME growth in India.

According to industry estimates, Indian households have more than 25000 tonnes of gold. And, less than a fifth of that is being pledged to raise loans. About 60% of this market still remains outside the formal financial system, indicating vast potential in the gold loan sector.

George Alexander Muthoot, MD, Muthoot Finance on the occasion of International MSME Day today said  Muthoot Finance recognizes the potential of pledging this idle gold in driving entrepreneurial spirit by navigating through unforeseen emergencies and working capital needs of small business. 

He pointed out that Gold loan, its principal business, is often opted by MSMEs and small business owners for a constant cash flow to manage critical situations such as machinery breakdowns, supply chain disruptions as well as to expand business operations or invest in newer technologies

In such situations, most MSME owners face rejection from traditional lenders often leading to closure of operations. In alignment with the increased focus from RBI on accelerating growth and reducing stress in the MSME segment, gold loan NBFCs play a crucial role in providing them with a working capital cushion with quick access to funds and flexible amounts all without the need for a strong credit history. This is exactly what they need to seize new opportunities, and maintain business continuity, he added.