Gold loans turn safe haven for low-income borrowers
Mumbai: Lower-income borrowers, who typically depend on small-ticket loans, are increasingly moving away from microfinance institutions (MFIs) and turning to gold loans for immediate requirements. This shift is driven by soaring gold prices, lower gold loan rates and higher scrutiny by MFIs in sanctioning new loans.
According to data from the Reserve Bank of India (RBI), loans against gold surged 122% year-on-year as of June while data from the Microfinance Industry Network show outstanding microfinance loans declined 16.5% during the same period.
“Many customers who previously relied on unsecured loans have found that route increasingly inaccessible,” said Sanchay Sinha, chief general manager and head – retail at South Indian Bank. “With limited options for additional funding, they are now monetising their gold assets to meet financial needs.”
With an aim to reduce over-indebtedness and improve asset quality, the MFI industry had introduced three lender exposure-cap on a single borrower beginning this financial year.
The number of such borrowers queuing up at more than three financiers fell to 3.1 million at the end of June from 5.7 million a year earlier, according to CRIF High Mark data.
This shift in stance by MFI is the key driver to pledge family jewel, experts said.As of July 2025, outstanding loans against gold jewellery stood at ₹2.94 lakh crore, marking a 122% increase year-on-year. In comparison, unsecured credit card loans grew just 6% to ₹2.91 lakh crore, and personal loans rose 8% to ₹15.36 lakh crore, RBI data showed. Meanwhile, total assets under management (AUM) of MFIs fell to ₹1.34 lakh crore, down 16.5% from a year earlier.
Gold prices have surged 44.14% in 2025, currently trading at ₹1,13,800 per 10 grams, up from ₹78,950 on December 31, 2024, according to Reuters.
Shift in Gold Loan Perception
Experts note a shift in the traditional perception of gold loans, which were once seen as a last resort during financial distress. Today, gold loans are increasingly viewed as a convenient and mainstream financial tool.
“We’re seeing strong demand from western states like Gujarat and Maharashtra, as well as eastern regions such as Odisha,” said Kamal Sabhlok, head – secured lending and microfinance at RBL Bank. “Cultural affinity for gold and higher household gold holdings are contributing to this trend. Gold loans are no longer stigma-driven, but are now seen as a practical financing option,” he said.
Sinha of South Indian Bank said growth rates in gold loans from the West, North, and East have outpaced those in southern India.
Lower interest rates are a key factor driving this shift. Gold loans, being secured, typically carry interest rates between 10-15%, significantly lower than MFI loans, which often exceed 20%.
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