Fintech start-up Bold Finance has decided to shut down its business. It had raised a seed round of $1.5 million in 2022, led by Kae Capital.

Two months ago, buy now, pay later firm ZestMoney said it would be shutting down amid an unsuccessful attempt to revive its business under new management and regulatory uncertainty.

Bold Finance facilitated gold loans in Tier 2 and Tier 3 cities from jewellers and pawn brokers. The aim was to reduce the interest rates charged to end customers, frequently exploited with interest rates of 30 per cent or more.

The company partnered with them as credit franchises. The jewellers and pawnbroker networks approved the gold loans using the company’s platform, and the latter’s partner bank underwrote the loan.

At one point, the company did around ₹25 crore of loan disbursements and ₹10 crore of AUM across active partners across Mumbai and Bengaluru. Bold Finance had earlier claimed that the cost and time required for it to start a new branch were 60 times lower than those of its competitors.

‘Not productive’

“As painful as it sounds, we are closing Bold Finance. We arrived at this decision after contemplating a lot and sitting on it for a good enough time,” the company’s founder, Nikhil Jain, said in a note.

“As we expanded our presence, we achieved considerable success in adding new branches. However, these new branches didn’t match the productivity of our earlier ones. By early 2023, we had reached a standstill in the loan productivity of these branches. Our partners were attributing the low productivity issue to receiving lower margin shares. But on further deep-dive, we found the issues were much bigger and more multi-faceted,” Jain said.

A major chunk of the $135-dollar gold loan market is still unorganised (65 per cent) and served by jewellers and pawn brokers. However, these players are facing a reduction in their gold loan business due to increased competition from organised players.

Shifting focus

Banks shifted their focus to the gold loan market with competitive products post Covid. During Covid, the RBI allowed banks up to 90 percent loan-to-value (LTV) ratio, making them more competitive in the market.

In metros and Tier-1 and Tier-2 cities, the unorganised market had shrunk, while in Tier-4 or Tier-5 cities, it was too fragmented to sustain viable unit economics.

“As we ventured into cities such as Guntur, Eluru, Unnav, and Madurai, our understanding of Tier-3 and Tier-4 markets deepened. In our model, we were only banking on unorganised markets, which limited our ability for business development as good unit economics,” Jain said.

Jewellers were facing challenges in obtaining larger-ticket loans, as the majority of these loans were now being acquired by banks, he said. Additionally, jewellers are reluctant to give small-ticket loans of less than ₹50,000 due to factors such as the need for undergo a KYC process.

One in five Indian unicorns could close or get acquired by FY27, a note by Redseer Strategy Consultants said last year.