Gold loans have increased in the low income group
New Delhi: Gold loans are becoming increasingly popular among low-income individuals facing financial stress. While previously dependent on microfinance institutions (MFIs) for small loans , they are now mortgaging their jewelry to meet immediate needs. The 44.14% increase in gold prices in 2025 and the low interest rates on gold loans are believed to be the main reasons for this shift.
Shift from microfinance to gold loans
Reserve Bank of India (RBI) data shows that gold loans increased 122% year-over-year through June 2025. In contrast, microfinance loans declined by 16.5%. Experts say that due to the stringent terms imposed by microfinance companies, people are now turning to more readily available gold loans.
Sanjay Sinha, chief general manager of South Indian Bank, says that customers who previously used to take out unsecured loans are now finding this avenue difficult. Therefore, they are turning to gold jewelry to meet their financial needs.
Rising figures and compulsion
According to the data, the number of borrowers approaching microfinance institutions fell to 3.1 million by June 2025, from 5.7 million a year earlier. Outstanding loans against gold jewelry reached ₹2.94 trillion by July 2025, a 122% increase.
In comparison, unsecured credit card loans grew only 6% to ₹2.91 lakh crore, according to the RBI. Personal loans grew 8%, reaching ₹15.36 lakh crore. The AUM of microfinance institutions fell to ₹1.34 lakh crore, a 16.5% decline year-on-year.
Change in sentiment and the interest effect
Gold loans were once considered a last resort, but they have now become a mainstream financial option. Experts say the low interest rates on gold loans are a major reason behind this shift. Because they are secured, they typically charge 10-15% interest, compared to microfinance loans that typically charge more than 20%.
The availability of quick funds to low-income individuals and the rising price of gold have made gold loans more attractive. They are now seen as a convenient option, not just a crisis solution.
Why has there been such a sudden surge in gold loans?
The main reasons for this are the sharp rise in gold prices, low interest rates on loans, and strict policies of microfinance institutions. People find this route easy and safe.
Why is gold loan being chosen over microfinance?
Because microfinance interest rates are high and there is increased caution in approving new loans, gold loans, on the other hand, are readily available with simple procedures and low interest rates.
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