Mumbai: IFC, a sister organisation of the World Bank, will invest $35 million in Manappuram Finance Limited (MFL) to help low-income households and small enterprises avail loans against their gold assets, Manappuram said in a statement on Tuesday.
This is IFC’s first investment in a gold-loan non-banking financial company (NBFC) in India. Gold loan companies offer loans to customers and small businesses by enabling them to monetize their gold without the need for documentary proof of income.
India has 23,000 tons of gold with an estimated market value of $1 trillion, Manappuram Finance said citing data from World Gold Council.
“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 of India 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,” the statement added.
According to Jun Zhang, IFC Country Head for India, IFC is making its first investment in a gold-loan finance company to create opportunities for the rural and poor households to transition from informal to formal credit.
This three-year, senior, secured loan from IFC to MFL is an endorsement of the critical role gold-loan NBFCs play in bringing first-time customers into the formal economy, the statement said, adding that 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.