International Finance Corporation (IFC), a sister organisation of the World Bank Group, will invest $35 million in Manappuram Finance Ltd (MFL), making this its first investment in an Indian gold-loan Non Banking Financial Company (NBFC).

“We are making our first investment in a gold-loan finance company to create opportunities for the rural and poor households to transition from informal to formal forms of credit,” said Jun Zhang , IFC Country Head for India. “Through this investment, we are supporting one of the priorities of the Indian government to unlock the value of idle gold and bring a large part of India’s unofficial savings into the formal financial system.”

This is a three-year, senior, secured loan from IFC. IFC may also provide advisory services to bring global best practices to MFL’s risk management systems and help it build capacity in MSME lending, the company said in a statement. Gold loan companies offer loans to financially-excluded customers and MSMEs by monetising their gold without the need for documentary proof of income.

“IFC’s investment will help us deepen our reach in rural and semi-urban areas to offer people a viable alternative to informal credit,” V.P. Nandakumar, MD & CEO at MFL said. According to the World Gold Council, India has 23,000 tonne of gold with an estimated market value of $1 trillion. However, the current market size of formal gold loans is a mere $19.6 billion, which leaves the field open to pawn-brokers and usurious money lenders in rural areas.

The Government encourages formal financial institutions to enter the market not only to bring large stocks of idle gold into the mainstream for productive use, but also to stem the rising indebtedness and exploitation.

IFC is the largest global development institution focused on the private sector in emerging markets.