New Delhi: Gold is shining brighter than ever and few are benefitting more from its meteoric rise than India’s billionaire Muthoot family. As gold prices soar, people are rushing to pledge their jewelry for quick loans and the family’s nearly 90-year-old gold-loan empire is cashing in. The surge in demand has sent the company’s stock to an all-time high, lifting the Muthoots’ combined wealth past 13 billion dollars, according to the Bloomberg Billionaires Index.
India’s Shadow Banks Ride the Gold Wave
Muthoot Finance Ltd.’s meteoric rise highlights the growing power of India’s shadow banking sector, which is quietly driving much of the country’s economic momentum. Gold loans, in particular, have taken off in a big way, soaring 35 per cent in the 12 months ending June to 13.4 trillion rupees ($151 billion). That makes gold lending the fastest-growing segment among all consumer loans, according to CRIF High Mark Credit Information Services Pvt.
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Rising Competition Puts Pressure on Muthoot
With gold prices hovering near record highs, Muthoot Finance now faces a new test keeping fast-growing rivals in check. The sector is heating up, especially after Bain Capital agreed to invest about 500 million dollars for an 18 per cent stake in Manappuram Finance Ltd.
At the same time, Mitsubishi UFJ Financial Group is eyeing a 20 per cent stake in Shriram Finance Ltd. for 2.6 billion dollars, as reported by ET. Even as Muthoot looks to expand its already massive network of more than 7,500 branches by adding up to 200 new outlets each year, holding onto its position as India’s top gold lender won’t be easy in this increasingly crowded market.
India’s Deep-Rooted Love for Gold
No country treasures gold quite like India. Households across the nation collectively hold an estimated 34,600 tons of the precious metal — worth a staggering 3.8 trillion dollars, according to Morgan Stanley. That’s more than what the central banks of the US, Germany, Italy, France, Russia, and China hold combined. For a population of 1.4 billion, it averages out to nearly 25 grams of gold per person, valued at over 3,250 dollars at today’s prices. To put that into perspective, India’s GDP per capita is just 2,820 dollars, as per IMF data.
A Cultural Bond That Goes Beyond Wealth
Gold isn’t just a precious metal in India it’s woven into everyday life and centuries-old traditions. From Hindu rituals to festivals like Dhanteras, when families buy gold to honor Goddess Lakshmi, to grand weddings where brides are adorned with bangles, necklaces, and rings, gold holds deep cultural and emotional value.
The use of gold as collateral is just as old. Long before the Muthoot family entered the business, local jewelers would lend small amounts, sometimes as little as $17 dollars to help people tide over tough times. Since loan sizes are linked to the value of the jewelry, rising gold prices mean larger loans and, in turn, higher interest income for lenders like Muthoot Finance.
A Unique Family Legacy
The Muthoot family stands out in more ways than one. As Orthodox Christians in a largely Hindu nation, their traditions and even their names set them apart. English first names are common in the clan, with George being a long-time favorite; in fact, nine of the company’s 15 directors share that name. Muthoot and his brothers represent the 19th generation of a family line that has built one of India’s most influential financial empires.
A Straightforward Loan Process Built on Trust
Muthoot’s lending model is simple and easy to understand. Customers walk into a branch with their gold jewelry, where staff check the purity before offering a loan worth up to 75 per cent of its value. The gold must be at least 18 karats. To test purity, employees use an age-old method: they rub the jewelry on a black obsidian stone known as a Kasauti and apply a drop of nitric acid. If the mark fades, it signals low-quality or fake gold.
Most borrowers take loans for 4 to 12 months, returning later to reclaim their jewelry once the loan is repaid. Muthoot Finance charges 1 per cent to 1.5 per cent interest per month, and the annualized rate can cross 19 per cent, making the business both simple and highly profitable.
Muthoot Finance branches are surprisingly modest, especially given the value of the gold stored inside. Most of their outlets are located in low-income neighborhoods the very areas traditional banks usually avoid making the service easily accessible to people who need it most.
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