During the pandemic, when many loans came under pressure, the gold finance industry saw aggressive growth, driven by banking sector participantsImage: Shutterstock

JIndia’s affinity for gold is well known. Indians have always had a special connection with precious metals. It was used as a means of storing wealth, a hedge against inflation, and a highly liquid asset that could be pledged or easily liquidated. As most of India’s gold is found in the form of heirloom jewelry, there is an emotional relationship with gold. This is why most Indians prefer not to sell it or only sell it as a last resort. However, due to the pandemic-induced economic distress, there has been an increase in demand for gold loans. Small businesses and individuals have turned to gold loans to stay afloat.

The gold lending industry has always been attractive because of its low credit eligibility, high liquidity, and because it can be easily used to raise additional capital in times of emergency. During the pandemic, when many loans came under pressure, the gold finance sector saw aggressive growth, driven by participants in the banking sector. Public sector banks like SBI have witnessed a sixfold increase in gold lending. The sector has also seen the entry of new digital-only players such as Rupeek and Indel who are trying to redefine the gold lending market in India. Moreover, gold finance is very disorganized. The organized sector represents only 35% of the entire market (KPMG, 2020). Therefore, organized players in the gold finance industry have a great opportunity as their fundraising cost is significantly lower than that of unorganized market players. These players have tapped into this huge opportunity and experienced unprecedented revenue growth over the past two decades, making many of these companies household names.

Gold loans have grown because they are a safe bet for banks (low LTV), a convenient solution for customers and require very little documentation. Rising gold prices have also resulted in a gradual increase in the average amount of gold loans disbursed. As we enter the post-pandemic era, where individuals and businesses are no longer “reacting” but “rebuilding”, we need to recalibrate the understanding of the gold finance ecosystem. However, our conversation with business leaders in the industry revealed that not all states have experienced the same enthusiasm for gold loans. After looking at the multiple products, we realized that the industry has ignored regional differences and all of its marketing programs (including product, price, promotion and location) are consistent across the country. .

India is a continent that masquerades as a country, with each state being culturally different from the other. Individuals in different parts of the country also lead very different lives. These cultural and traditional differences have a strong impact on their consumer behavior. For decades, these regional differences have been ignored by companies in favor of a “one size fits all” approach. The fact is that countries like Belgium and the Netherlands have more in common with each other than some states in India. But the companies have respected their diversity and designed country-specific products.

This raises the question of whether now is the time for companies to recognize differences and design unique products that will help them maximize value for their customers and shareholders. We interviewed 23 sales associates from different parts of the country and suggest some potential regionalization strategies for the gold finance industry.

Five ways the gold finance industry can adapt to these regional differences and maximize value:

1. Flexible North
In North and North-Central India, consumers value flexibility and do not like to be bound by procedures. This feeling can be created by giving consumers control over the structure of the loan or at least part of it. This will not only increase their willingness to pay for the loan, but also their brand loyalty. This opportunity can be afforded by offering customers flexibility in loan duration by even offering day loans.

2. Target women
Although most of the gold in India is owned by women, only a small percentage approaches financial institutions for gold loans. This could be due to the male dominance that persists in Indian culture. However, regions like South and North East India are more equitable. Thus, financial services institutions need to make the environment more conducive for women to conduct their business. This can be done by employing more women in these regions. Staff training should also involve gender awareness in order to make office spaces comfortable for their colleagues and clients.

3. Use of the CSR fund
Since Central India is the cornerstone of Hinduism, worship of nature and environmental protection are ingrained in people’s minds. In South and East India, people have shown a tendency to be more people-oriented and concerned about the welfare of others. Unlike the central region of India, they seem to give more importance to people than to nature. Corporate social responsibility offers companies a unique opportunity to build a brand and develop a relationship with their customers. Appropriate use of funds would help the brand gain brand awareness and thus get a higher return on investment even on the funds it deploys for its CSR initiative.

4. Quality expectation
South India has better infrastructure, good institutions and many social welfare schemes. As a result, people expect public and private sector services to be excellent even if they cost more. Their willingness to pay for these services is higher than that of the rest of the country. Therefore, it is important for service providers to focus on etiquettes, faster resolution of grievances, and creating a good atmosphere for customers. Even if it means they should pay a small premium.

Our research has shown that the industry’s approach of treating India as a homogenous entity has resulted in a lack of a personalized approach towards the industry and most players in the gold finance industry leave room for improvement. money on the table.

Sourav Borah, Assistant Professor, Marketing, IIM Ahmedabad
John Joseph, PGP Student, IIM Ahmedabad
Varun Hooda, PGP Student, IIM Ahmedabad

The references:
1. KPMG (2020), Return of Gold Financiers in India’s Organized Lending Market, KPMG Report 2020