STUDY OF GOLD-LOAN MARKET AS AN ALTERNATIVE SOURCE OF CREDIT FOR LOW-INCOME HOUSEHOLDSPrincipal Investigators: Misha Sharma
Research Team: Misha Sharma
LEAD Centre: Centre for Microfinance (CMF)
Focus Area: Credit
Project Geography: Tamil Nadu, India
Partner: Manappuram Finance Limited
India is one of the biggest markets for gold and gold loan. Reasons for this are spread across various social, economic and cultural dimensions. According to World Gold Council, India accounts for 10% of total world gold stock, of which rural India accounts for 65% of the total gold stock. For Indians, gold is not just a commodity, but an auspicious metal that they buy for various purposes on different occasions. There has always been a high demand for gold in India, irrespective of prices. During 2001- 2012, the annual demand for gold remained relatively stable at around 700 to 900 tonnes despite constant rise in prices during the last ten years.
The gold loan market in India is broadly classified into two categories, namely: Organised Sector and Unorganised sector. Organised sector primarily constitutes of formal institutions like banks and NBFCs; unorganised sector includes informal institutions like private money lender and pawn broker. However, the market share between the unorganised and the organised sector is extremely skewed (75:25). Traditionally gold loans were provided only by informal market players, however, over the last few decades, there has been a considerable shift in this scenario as a pool of specialized financial institutions (NBFCs) have emerged catering to the financial needs of low-income households.
Introduction to the study
This study is intended as a descriptive study to deepen the understanding of the characteristics and behaviors of the various stakeholders involved in the gold loan market. In specific, we present a comparative analysis of the formal and informal sector within the gold loan market by looking at the various factors associated with participation in unorganized versus organized sector and the different purposes for which gold loan are acquired.
The primary objectives of the study are as follows:
- What are the characteristics of gold loan products versus other sources of credit (MFI’s, SHG’s, community based lending, etc.) available to the poor?
- What are the characteristics of those customers that take gold loans from the organised sector vs. unorganised sector?
- What factors are associated with participation in the unorganised and organised sectors of the gold loan market?
- What are the various purposes for which poor acquire gold loans
Methodology and Research Design
The study uses survey methodology in order to answer the questions detailed above. For this purpose, data collection activities are conducted among 400 randomly selected gold loan clients in Karaikudi town of Sivagangai District, Tamil Nadu. We divide our sample equally, such that 200 clients have acquired loans from informal vendors (pawn brokers/private money lender) and the other 200 from formal vendors (banks/NBFCs). Since we want to maximize the statistical power so as to be able to observe trends when comparing clients of the unorganized sector vs. clients of the organized sector, we build a sample that is balanced along these characteristics. However, this study is only a correlational analysis and does not allow for any causal conclusion.
The data collection and analysis for the study is complete and we are currently in the process of disseminating our study results to policy makers and practitioners through articles, blogs and working papers.