Gujarat: High gold prices spawn new business model

AHMEDABAD: If you pawned jewellery or gold to get a loan and failed to repay it, the finance company auctions off the gold and recovers its loan. This lending model coupled with rising gold prices has given birth to a new business in the state. A few players are repaying such

loans

, selling the pawned gold and making a cut on the extra value of the jewellery or gold.


This business has clicked because gold prices have been rising steadily. The difference between the market value of such gold today and the amounts lent against such security leaves room for arbitrage. Such players then pay off or buy the debt, sell the gold and return the margin to the borrower for a 10% commission. There are a dozen or so players in Ahmedabad alone.

According to those involved in the business, 30% of those who pawn gold end up as defaulters. Most people pawn gold only after exhausting all other credit options and such people prefer not to tell people that they have pawned gold.

These gold refinancing players reach out to such debtors by placing advertisements on autorickshaws or

pasting

posters in public places. “The customers get the difference between the loan outstanding and the gold prices when we sell the pawned gold. If the lenders auction off such collateral, they do not return the difference to their borrowers. We get a commission on settling such loans,” says

Mayursinh Jadeja

, proprietor of Meena Gold, who claims to have he introduced this business model to Ahmedabad a few years ago.

Jadeja

says this service is now available in all cities of Gujarat and he plans to expand his business to UP and Maharashtra as well.

Dharmesh Patel of

Thomas Gold

, another such firm, said that those without enough money to close their loans come to them. “The customers know they will lose the difference if the lender auctions off the pawned gold. We make sure they get this amount.” He added that there are a dozen companies in Ahmedabad in this business.