Lower-income borrowers with limited income are increasingly turning to gold loans instead of microfinance institutions (MFIs) to meet urgent financial needs. Rising gold prices, lower gold-loan interest rates and stricter MFI lending norms are driving the trend. RBI data show gold-backed loans jumped 122 per cent year-on-year until June, while the Microfinance Industry Network reported a 16.5 per cent drop in outstanding microfinance loans during the same period. “Many customers who previously relied on unsecured loans have found that route increasingly inaccessible,” said Sanchay Sinha, chief general manager and head–retail at South Indian Bank, as quoted by Economic Times. “With limited options for additional funding, they are now monetising their gold assets to meet financial needs,” he added. At the start of this fiscal year, the MFI sector imposed a three-lender exposure cap per borrower to curb over-indebtedness and improve asset quality. CRIF High Mark data show borrowers dealing with more than three financiers fell to 3.1 million by June from 5.7 million a year earlier. Financial experts say this tightening is compelling many to pledge family jewellery. Gold-backed jewellery loans climbed to Rs 2.94 lakh crore by July 2025, up 122 per cent from a year earlier. In comparison, credit card loans rose 6 per cent to Rs 2.91 lakh crore and personal loans increased 8 per cent to Rs 15.36 lakh crore, according to the RBI. MFI assets under management slipped 16.5 per cent to Rs 1.34 lakh crore. Gold prices have surged 44.14 per cent in 2025, trading at Rs 1,13,800 per 10 grams versus Rs 78,950 on December 31, 2024, Reuters reported. Financial analysts noted that gold loans have moved from being a distress option to a mainstream financial product. “We’re seeing strong demand from western states like Gujarat and Maharashtra, as well as eastern regions such as Odisha,” said Kamal Sabhlok, head–secured lending and microfinance at RBL Bank. “Cultural affinity for gold and higher household gold holdings are contributing to this trend. Gold loans are no longer stigma-driven, but are now seen as a practical financing option,” he added. Sinha added that gold-loan growth in western, northern and eastern regions has now outpaced southern India. Lower interest rates of 10–15 per cent on gold loans, compared with MFI rates exceeding 20 per cent, remain a key draw.
