The yellow metal is used by the Indians as a retirement fund
, a source of safety in case of disasters, a way of floundering wealth etc. This precious metal has become during time the foundation of a new type of business in India: gold loans.
When the Western people hear about pawning, they immediately think of hard times and distress. For Indians this is just a type of loan taken in order to expand a business or just to buy things. They think that this is the fastest and most secure way of getting a loan. From the point of view of the economists these types of Indian loans just show how limited and somewhat restricted, the Indian markets are.
Most of the people in this country don't have official documents to prove their income and this is the only way that they can borrow money. Statistics show that in India almost 92% of the working force is not working legally. Ordinary people, with ordinary jobs such as driving a rickshaw are accustomed to pawn part of the family jewels when the business calls for it. They always buy the items back when they make enough profit. The downside is that someone that makes this type of loan has to pay an interest of 15 to 18%.
Because India's banking system is in most part state-controlled, credits are not easy to get. Most of the people that can make a bank loan are either wealthy or work in an industry sector. Trading your jewelry in exchange for cash has been a common practice for a very long time in India's back alleys. There are no formalities and you can buy your items back when you have the money. The bad thing is that the interest rates can reach astronomical numbers such as 30%.
More recently the Indian financial system has become more inclusive, but still it hasn't gained the trust of the people. More Indians own gold than stocks or bank accounts. Statistics from the World Gold Council showed that only 40% of the Indian population holds bank accounts and 60% of the population holds gold. Gold has always been a good investment especially because it doesn't lose its value so easily. So, if you plan on investing in gold, this is the right time to do it.