“From a gold loan perspective, higher gold prices have a positive impact, especially for MSME customers,” said John Muthoot, chairman and managing director of Muthoot FinCorp – part of the Muthoot Papachan Group. “Approximately 67% of our customer base is small business owners and self-employed individuals. Increases in gold prices improve the availability of working capital without the need for additional collateral. It can support inventory purchases, manage acquisition cycles, and provide short-term cash flow stability during times of uncertainty.”
Shares of Muthot Finance rose 3.5% to ₹ 3,470 a share on Tuesday.
Gold prices, which typically rise during periods of geopolitical uncertainty, have risen more than 80% in the past year and are hovering around $5,400 a troy ounce. Over the weekend, Iran’s top leadership was killed in US and Israeli strikes, plunging the Middle East into another round of chaos.
For MSMEs and the self-employed, higher rates improve the availability of working capital without additional commitments, which can provide short-term cash flow.
Gold loans have registered a system-wide CAGR of over 30% over the past few years – more than double the growth rate of personal loans. They are now the largest retail loan category after housing, accounting for 14-15% of the portfolio. A significant part of this growth has been driven by rising gold prices, which have doubled in the past few years.
While PSU banks account for 45-50% of gold loans by value, NBFCs account for 45-50% by volume. “While earlier expectations suggested that gold prices may have eased, new geopolitical developments and global macro uncertainty are likely to keep prices steady,” said Manish Mayank, Head of Trading at IIFL, Head of Gold. “In such an environment, we generally see an increase in demand for gold loans, especially from small business owners, traders and households who take advantage of their existing gold assets for short-term liquidity rather than risking investment or taking unsecured credit.
Gold has historically served as a safe haven during periods of geopolitical uncertainty, and the crisis in the Middle East has reinforced this trend once again. A rise in gold prices increases the attractiveness of buyers and increases borrowing capacity, as the value of the collateral rises.
