Indian citizens use gold as collateral to get loans

One of the criticisms of gold from an economic point of view is that it is a “barbarous relic”. Meaning it does not offer returns like other financial assets. However, in times of crisis or an emergency, the precious metal shows its real value.

An example is what is happening in India: in the face of banks’ reluctance to grant loans, citizens are using their gold as collateral.

Gold shows its true qualities in times of crisis and uncertainty in the markets. Today, many countries are going through precisely in this situation. It is affecting the economic activity of their residents. The solution here could be found in precious metals. 

More and more citizens in India are using their gold to obtain bank loans. Experts explain that in the financial sector, banks are reluctant to grant loans because of the economic crisis caused by the pandemic.

Many farmers relied on bank loans to acquire the seeds and materials that would serve them for the next harvest. However, they have seen how the banks complicated their franchise with numerous administrative procedures. Many of them did not even complete their applications.

Given this circumstance, many farmers have chosen to take advantage of what they have used as insurance and means of protection for centuries: gold.

Indeed, banks that are reluctant to lend for fear of defaults are instead delighted when customers bring them gold to secure loans.

Using gold as collateral is not a new thing in India. In fact, its citizens have used precious metal for centuries as a means of saving and protection. What does constitute a novelty is its use as collateral for bank loans.

Somasundaram PR, the World Gold Council’s managing director of operations in India, points out that banks show a higher risk aversion. Meanwhile, gold loans can be a very appropriate way for clients to obtain liquidity and investment capital.