Gold is thought to be the most looked at and evergreen de-facto currency among them all. Gold’s value remains constant, come rain or sparkle. A gold loan, also known as a loan against gold, is a source of financing that customers can obtain using gold ornaments such as gold jewelry. It is the most convenient way to meet your financial needs and is a viable alternative to obtaining loans through traditional banking channels.
Gold loans have been practiced in India for centuries by moneylenders and jewelry stores operating in country lanes. The interest rates charged by NBFCs such as Kannat Finance on gold loans differ from those charged by commercial banks. The introduction of the gold loan in NBFCs into the market changed the dynamics of the industry by introducing new technologies and control techniques, as well as massive development into rural and semi-urban countryside.
Why NBFC?
Loan for gold in NBFCs has a unique business model in that they provide instant loans to small and marginal borrowers. Yes, the cost exceeds what banks would have charged. However, these are people who rarely have a consistent source of earnings or documentary evidence to demonstrate credit ratings. They face numerous obstacles in obtaining bank loans without a viable credit score. In comparison to the sky-high interest rates charged by local lenders, the plan offered by gold loans in NBFCs was a compelling proposition. A gold loan is in two minutes in NBFC. Kannattu FinGold Finance is one of Kerala’s leading Gold loan NBFC companies.
Because gold loans are secured, NBFCs can relax their obligations for due diligence. Banks, which must adhere to strict Reserve Bank of India (RBI) guidelines on bad loans and minimum capital, do not have such lax lending policies, whether secured or unsecured. Even though personal loans are unsecured, the eligibility criteria and due diligence are much more stringent.
Today, we see banks rapidly expanding their gold loan books, thanks in large part to the gold loan NBFCs’ perseverance. Over the last two decades, they have been critical in bringing millions of marginal borrowers into the formal sector. However, the job is far from done because unorganized moneylenders still control two-thirds of the gold loan market.
Gold loans from NBFCs are simple to obtain and require little documentation. They have more flexible repayment options and no processing fees, Also they have introduced low interest rate gold loans per gram scheme. Those who do not meet the banks’ stringent eligibility and documentation requirements can take advantage of this option.
Borrowers can repay only the interest on their loans during the term of the loan and pay the principal at the end. Most banks, particularly public sector banks, make gold loans on a term basis, which means that both interest and principal must be paid on a regular basis. The majority of NBFCs allow prepayment without penalty.
As he continues, poverty alleviation is about increasing families’ disposable income by lowering the cost of services, improving their quality, and giving them more time to do productive work. When a marginal borrower approaches a gold loan NBFC for a small ticket loan, he can walk away with the money in minutes and get back to work. He would have to submit multiple documents and make numerous trips to complete the sanction process with any other loan, incurring the opportunity cost of lost wages for a day or two, if not more.
Customers who take out a gold loan must temporarily part with family jewels that are more valuable to them than monetary value. They would rather entrust these to a lender who can be relied on to keep them secure and return them intact and undamaged when required. Substantial gold loan NBFCs operate similarly to banks, with well-defined guidelines and procedures. Their own divisions have adequate security measures in places, such as strong rooms, CCTV cameras, guards, and particular access procedures, to guarantee the safety of the collateral. Furthermore, they protect the gold from theft and other unforeseeable events. Audits and inspections ensure the holdings’ continued integrity. Proper management and storage are also done with care so that the jewels are not damaged.
Unorganized moneylenders still control two-thirds of the gold loan market, so the job is far from done. That is why policymakers should give gold loan NBFCs every encouragement to proceed to lead the way for organizational lending institutions to increase market share from unorganized banks.
