Gold Loan: Gold Loan Trend Is Growing Among Low-Income Groups Know The Reason..

Low-income borrowers typically relied on microfinance institutions (MFIs) for small loans. This trend is now undergoing a significant shift, with many opting for gold loans for their immediate needs. This shift is driven by rising gold prices, lower interest rates on gold loans, and increased caution among microfinance institutions in approving new loans. According to the report, gold prices increased by 44.14% in 2025.

According to Reserve Bank of India (RBI) data, loans against gold increased by 122% year-on-year through June. Meanwhile, outstanding microfinance loans declined by 16.5% during the same period. According to ET, Sanjay Sinha, Chief General Manager and Retail Head of South Indian Bank, explained that many customers who previously relied on unsecured loans are now finding that route difficult. He added that they are now using their gold jewelry to meet their financial needs.

Forced to mortgage
According to data, the number of borrowers queuing up with more than three financiers dropped to 3.1 million by the end of June from 5.7 million a year ago. Experts say this changed approach by microfinance institutions is forcing people to mortgage their family jewelry. Outstanding loans against gold jewelry stood at ₹2.94 lakh crore as of July 2025, representing a 122% year-on-year increase.

According to Reserve Bank of India data, unsecured credit card loans grew by only 6% to ₹2.91 lakh crore. Personal loans grew by 8% to ₹15.36 lakh crore. Meanwhile, the AUM of microfinance institutions (MFIs) reached ₹1.34 lakh crore, a 16.5% decrease from a year ago.

Reasons for a change in thinking?
Experts are seeing a shift in the traditional perception of gold loans. Once considered a last resort in times of financial crisis, gold loans are increasingly viewed as a convenient and mainstream financial tool. Experts say low interest rates are a key factor in this shift. Because gold loans are secured, they typically charge interest rates between 10% and 15%. This is significantly lower than MFI loans, which often exceed 20%.

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