Millions of small borrowers in India are now moving away from microfinance to gold loan. Gold prices reached record highs, low interest rates on gold loans and strict policies of MFIs have intensified this change. Let’s know all the details.
Families whose income is very low, previously depended on small loans i.e. microfinance loans for their needs. But now a large number of gold are moving towards loans.
There are three reasons behind this change. First, gold record breaking prices, low interest rate on gold loans and strict policies of MFIs (Microfinance Institute).
Microfinance
The microfinance sector has recently implemented a new rule, under which no borrower can borrow from more than three MFIs. This has made it difficult for many families to raise money for small expenses. According to the data, as of June 2024, 57 lakh people were taking loans from more than three institutions, but by June 2025 the number has come down to just 31 lakh. Now in compulsion, people are taking loans by mortgaging their jewellery.
Gold loan
Reserve Bank of India figures show that as of July 2025, outstanding debt in lieu of gold jewellery has reached ₹2.94 lakh crores. This is a tremendous increase of 122% over the previous year. Credit card loan has increased by only 6% and personal loan by 8%. At the same time, asset under management of microfinance has come down by 16.5% to ₹1.34 lakh crores.
Gold prices also rose
Gold prices have seen a 44% rise so far in 2025. Gold was ₹78,950 per 10 grams in December last year, which has now increased to ₹1,13,800. The direct advantage of price increases is that people are getting more debt even by mortgaging less jewellery.
Gold loans have now become an easy and economical option for people, not just resorting to crisis. Gold loan demand is highest in states like Gujarat, Maharashtra and Odisha. Experts say that Gold is now being considered a financial tool.
Rate of interest
The interest rate on gold loans is usually between 10-15%, while microfinance loans get more than 20% interest. This is the only reason why even low-income families are no longer hesitating to mortgage jewellery.
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