Muthoot Finance, the Kerala-based non-banking finance company is the largest player in the gold loan business in India, with more than 1,600 branches. The company gained acceptance among small and medium enterprises in North India during the recent credit crunch, which turned to it for inventory and export funding. The group has interests in financial and commodity broking, IT, power generation and media, among others. FE?s Rajesh Ravi talks to group managing director George Alexander Muthoot. Excerpts:
How different is India in treating gold as an asset?
Unlike in the West, Indians use gold as an insurance. A middle class Indian may not own insurance, but his family will definitely have some gold. Today, in India, not even 5% of the gold held by households is utilized properly other than as ornaments. Indians have a fascination for gold ornaments. People also hold it as hedge against inflation.
Has the perception of pawning the family gold changed?
In the last 20 years in Kerala, all lenders have been giving gold loans. Pawning the family gold is quite prevalent in most of South India. But in the North, there has never been an organized player in this business and even banks have been reluctant. Again, people consider it shameful to pledge family gold. But with the entry of organized players, people are realizing that gold loans are smart loans, not desperate loans.
Could you elaborate on the concept of ?smart loan and desperate loan?
Desperate loan is one where you use the loan in an emergency, for eg, a hospitalisation. However, you can use gold loans as a cheaper substitute for credit cards and personal loans. Interest on gold loans work out to 12-21%, while that on credit cards and personal loans is 30-36%.
Has the average size of the gold loan increased over time? There have been reports that big business took gold loans during the credit crunch.
Yes. When banks were hesitant, some people used gold as an effective tool. With the price of gold sharply rising, people can raise a good amount of money by pledging gold. The average size of gold loans has increased to Rs 20,000 from Rs 1,000 ten years ago.
What is the size of the organised sector in this field? Will better regulation make it more attractive?
The organized sector is very tiny. Almost every small jeweler doubles as a pawnbroker. The organized sector is growing fast and will eventually replace the unorganized sector.
Regulation is not practical. It is impossible to monitor the unorganized sector. It is better that market forces determine the nature.
What is your strategy for growth and what is your current business?
In the current fiscal, we hope to do a turnover of Rs 30,000 crore which means that our lending will almost double when compared to the last fiscal. Eventually, we are also looking at divesting our stake and raising funds through an IPO or private equity funding because we feel that after a certain level, the company cannot remain a family-owned entity.