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Time of India

Gold loans turn microfinance companies' best bet amid fears about the unsecured

Kolkata: Gold loans appear to have emerged as the best bet for microfinance companies planning to increase the share of secured portfolio , although the regulator has tightened rules for lenders to the yellow metal. Companies like Arohan Financial Services and Uttrayan Financial Services are among the notable ones which have taken definite steps to explore this market segment. New gold loan norms, to be implemented from April 2026, have been made borrower-friendly, however. Loans against property (LAP) is the other preferred assets class for non-banking finance companies-microfinance institutions ( NBFC-MFI ), which are exploring opportunities outside the realm of microfinance to reduce the concentration risk taking advantage of a recent RBI directive allowing them to reduce the qualifying asset to 60% from 75% earlier. In other words, this new rule means NBFC-MFIs can have a 40% non-microfinance portfolio. Microfinance is unsecured, collateral-free loans offered to low-income households with annual income of less than ₹3 lakh. "We will explore secured assets like gold loans, micro LAP amongst others. This will help secure a better credit rating , portfolio diversity and better security and profitability," Arohan managing director Manoj Kumar Nambiar told ET. Uttrayan , on the other hand, on Wednesday unveiled its first dedicated gold loan branch near Kolkata. Arohan has prepared a concept note on foraying into the gold loan business which will be put up in the next board meeting. "The RBI guideline change on qualifying assets ratio to 60/40 is a welcome change as it helps board will discuss the proposal," said Nambiar, who is the chairman of industry body Microfinance Institutions Network. "People are primarily planning to venture into the gold loan business," said Alok Biswas, managing director at Kolkata-based Janakalyan Financial Services. Gold loans carry minimum risk as these are backed by gold ornaments. However, setting up a gold loan business needs a special eco-system for valuing the gold ornaments to be pledged and also to store them securely. CreditAccess Grameen , the country largest NBFC-MFI, has no plan to get into all these, said Udaya Kumar Hebbar, who superannuated from the company on June 25 and is now a non-executive director on the board.