There is rising anticipation among the common man for measures from the government that will directly create a positive impact on their financial well-being, and all eyes are on the forthcoming budget and RBI monetary policy.
Over the years, the government, the RBI and the Indian financial ecosystem have rigorously worked towards deepening financial inclusion across the remotest parts of India. Financial products like gold loans, credit cards, low-interest loans, and most recently the introduction of UPI have emerged as a game changer in fulfilling the financial and liquidity needs of the common man.
Over centuries, In India gold loans have served as a crucial means of financing for individuals to meet their immediate liquidity or credit needs, including funding education, buying a property, meeting working capital or starting a new business, and now we are also seeing young Indians being open to opt for a gold loan to bring home a new pet, or meet holiday/travel expenses.
Currently, the banks extend credit lines predominantly to corporates and enterprises, leaving a void in the market for a small credit line product tailored for the common man. In the absence of a credit line, Small business owners and individuals often have to resort to maintaining substantial savings accounts balance or choose credit cards and personal loans to meet their monthly financial needs. These conventional options usually attract high-interest rates and also lead to rise of unsecured lending.
Proposing 'Gold Linked Credit Line via UPI' by NBFCs
The Indian households possess up to 25,000 tonnes of gold which lies idle. We believe allowing gold loan NBFCs to initiate a 'gold-linked credit line via UPI' can turn to be a crucial step to unlock the financial flexibility of idle gold jewellery and provide the common man with easy access to a credit line that can help meet financial needs with ease and at lower interest rates. This forward-looking approach aims to tap into the hidden potential of the vast gold held by households across India and also deepen financial inclusion in India.
In comparison to personal loans and traditional credit cards, this proposed product offers a secured line of credit, and hence has the potential to restrain the rise of unsecured credit in the system. As the gold is involved as the collateral, individuals can access funds at lower interest rates ranging from 12% to 18%, a significant improvement over the higher rates (over 36%) associated with credit cards. This secured credit line not only provides financial flexibility to users but also ensures responsible borrowing practices.
Further, the extensive adoption of UPI is a classic example of how rapidly the Indian economy is moving towards digitisation and embracing digital payments. UPI payments in 2023 touched a new high with cumulative volume at 117.6 billion and value at ₹183 trillion, according to data shared by the National Payments Corporation of India (NPCI). Hence, with a view to drive digital payments in the country, allowing gold loan NBFCs to initiate a ‘gold-linked credit line via UPI’ would democratise access to credit for the common man and also aligns with the broader goal of financial inclusion.
Rural and semi-urban India face various challenges like lack of formal credit score, lack of financial documents and proximity to branches thereby leading to limited access to formal credit and also resorting to borrowing from moneylenders. The 'Gold-linked credit line via UPI' is apt to overcome all these challenges and also offers access to credit even with zero or low CIBIL score.
To conclude, we believe that the introduction of a ‘gold-linked credit line via UPI’ by NBFCs has the potential to revolutionise personal finance for the common man. The long-term objective of this move is to eliminate the barriers in credit access and cater to the immediate short-term finance needs.
Further, it will promote responsible borrowing with its secured nature and lower interest rates. By taking this crucial step towards financial inclusion, the government can empower individuals to navigate their financial journeys with confidence and security. As the world is rapidly adopting UPI and digitisation, we are of the opinion that the time is ripe for such forward-thinking measures to bridge the financial gap and pave the way for a more inclusive and resilient economy.
—The author, George Alexander Muthoot, is Managing Director, Muthoot Finance. The views expressed are personal.
(Edited by : C H Unnikrishnan)
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
PM Modi, Rahul Gandhi election rallies in Delhi today: Here are the routes to avoid
May 18, 2024 11:28 AM
Celebrity Kangana vs 'royal' Vikramaditya on Himachal's Mandi seat: Clash of richest titans
May 18, 2024 11:11 AM
2024 Lok Sabha Elections | Will Amethi and Rae Bareli see the rise of Priyanka Gandhi as a dominant political figure
May 18, 2024 8:59 AM
Lok Sabha Election 2024: I.N.D.I.A. bloc to hold rally at Mumbai's BKC today
May 17, 2024 5:18 PM