Indians pawning the family gold amid credit crunch

Mumbai: Refused a loan by a state-run lender and desperate for funds to buy cotton seeds before the summer sowing season window closed, Indian farmer Babasaheb Mandlik ran out of choices - he pawned his wife’s gold jewellery.

Mandlik, who owns an 8-acre cotton farm in western India, pledged 70 grams of gold, almost all of his wife’s precious trinkets, in June in return for 150,000 rupees (USD 2,105).

“Pawning the jewellery was a difficult decision as my wife likes to wear it at festivals and weddings,” 50-year-old Mandlik told Reuters. “I convinced her that we didn’t have any other option.”

Mandlik is not alone. While pawning gold has long been an option for quick funds in a country that is the world’s second-biggest consumer of the yellow metal, several lenders told Reuters of unprecedented demand as people struggle to secure loans from banks grappling with bad debt and a shadow lending industry stung by a liquidity crunch.

The trend, which has prompted some lenders to impose restrictions as risks and borrowing costs rise, has been accelerated by record gold prices.

Indians’ penchant for gold spans centuries and is rooted in the Hindu religion. Households own an estimated collective 25,000 tonnes of gold, which passes from one generation to the next.

Domestic gold prices MAUc1 have risen more than a fifth this calendar year, hitting a record high of 38,666 rupees per 10 grams earlier this month amid a global rise.

“As a lot of NBFCs (non-bank financial companies) have become cautious of giving unsecured or even secured loans, we are seeing more customers opting for gold loans instead,” said Sumit Bali, chief executive officer of IIFL Finance. “One can obtain a gold loan and walk out of the branch in just thirty minutes.”

IIFL’s gold loan portfolio stood at 65.83 billion rupees (USD 922 million) at the end of the June quarter, up 46 per cent compared to a year earlier.

Those pawning their precious possessions are most often independent workers, including farmers and small shop owners.

Muthoot Fincorp a leading gold financing shadow bank with 2.98 million customers, said its gold loans rose 6.6 per cent between April 1 and July 24 this year to 358 billion rupees.