World Bank arm IFC Tuesday announced maiden help for a gold loan company, committing USD 35 million to Manappuram Finance in a three-year loan.
The investment comes at a time when non-bank finance companies (NBFCs) are facing issues on multiple fronts, starting with liquidity pressures and also the prospect of changes in regulations.
IFC said its fund infusion is in sync with its strategic objective of "increasing the resilience of the country's financial sector while improving financial inclusion".
"We are making our first investment in a gold-loan finance company to create opportunities for the rural and poor households to transition from informal to formal forms of credit," its country head Jun Zhang said in a statement.
The money will be given as a three-year secured loan to the gold financier.
The statement explained gold loan companies like Manappuram offer loans to financially-excluded customers and small businesses by enabling them to monetise their gold without the need for documentary proof of income.
IFC said the investment in the gold-loan sector comes at a time when the sector is becoming more formal, with better regulations and has more of a level playing field with banks.
According to the World Gold Council, India has 23,000 tonnes of gold with an estimated market value of USD 1 trillion. However, the current market size of formal gold loans is only USD 19.6 billion, which leaves the field open to pawn-brokers and usurious money lenders in rural areas.
However, the banking regulator RBI has repeatedly expressed concern on the segment over a variety of matters.
IFC said the government 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.
"Through this investment, we are supporting one of the priorities of the Indian government to unlock the value of idle gold and bring a large part of Indias unofficial savings into the formal financial system," Zhang said.
"We see this as an endorsement of our role as an agent of financial inclusion in India," Manappuram's Managing Director and Chief Executive V P Nandakumar said.
The Manappuram scrip closed 1.92 per cent down at Rs 132.75 a piece on the BSE, as against gains of 0.17 per cent on the benchmark.
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