Micro, Small, and Medium Enterprises (MSMEs) have been monumental in accelerating growth through huge employment generation and fostering entrepreneurship.

With over 6.3 crore enterprises, MSMEs are the backbone of the economy as they contribute nearly 40 per cent of exports, besides providing livelihoods to over 11 crore people.

Despite being a significant contributor to India’s GDP, the MSME sector faces challenges in accessing adequate financial support. According to an MSME Lending Report by Avendus Capital, out of over 6.3 crore MSMEs in India, only 14 per cent have access to formal credit.

NBFCs play a crucial role in addressing the challenges faced by underserved sectors. Unlike traditional institutions, NBFCs provide quick and efficient credit access for MSMEs.

Empowering MSMEs

Among them, gold loan NBFCs have emerged as powerful allies, supporting MSMEs with credit needs during the pandemic and empowering this underserved sector.

As per World Gold Council, Indian households hold approximately 25,000-27,000 tonnes, 9-11 per cent of the world’s total physical gold and RBI reported around 5,300 tonnes is pledged gold.

As gold investment are recognized as a safe haven, it is often used as collateral, especially for those facing challenges in accessing quick and easy credit. That’s where the gold loan NBFCs play a crucial role.

Gold loan NBFCs specialise in offering loans against gold as collateral, simplifying the borrowing process for MSMEs, particularly those with limited credit history or other forms of collateral. Acceptance of gold as collateral helps in extending credit to a wider range of MSMEs.

Simplicity and accessibility

Firstly, gold loan NBFCs offer a simplified and accessible loan process, allowing MSMEs to secure funds without extensive documentation. They streamline loan procedures, reduce paperwork and simplify the application process. With their widespread presence and branch networks, even the remotest MSMEs can conveniently avail financial support. Gold loan allow borrowers to secure funds regardless of their CIBIL scores, credit history or collateral by using gold as collateral.

Digitalisation of services: With a focus on serving unbanked MSMEs, gold loan NBFCs have embraced digital transformation to provide access to quick and hassle-free loans. By leveraging eKYC, e-signature, and Aadhaar-based verification and utilising chatbots, cloud computing, AI/ML, they are streamlining procedures for improving the customer experience. This digital revolution is empowering gold loan NBFCs to efficiently cater to a broader customer base. With changing business landscapes, now gold loan NBFCs avail gold loans from the comfort of one’s home.

The interest rate charged by the unorganised players are much higher than those charged by regulated players like NBFCs and banks, making them the preferred choice for accessing finance, which benefits from greater credibility due to RBI oversight.

Gold loans have emerged as a powerful tool in empowering MSMEs and gold loan NBFCs as a catalyst for growth. Furthermore, with the introduction of 5G technology, NBFCs are leveraging faster networks to ensure last-mile connectivity and deliver enhanced services to MSMEs.

The popularity of gold loans among MSMEs has surged due to their convenience and reliability in meeting immediate financial needs as seen during the global pandemic. Given MSMEs crucial role , the synergies between gold loan NBFCs and MSMEs become increasingly significant in ensuring growth.

The writer is Managing Director, Muthoot Finance

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