Three gold loan companies in Kerala have more precious metal in their vaults than the gold reserves of some of the richest nations. Muthoot Finance, Manappuram Finance and Muthoot Fincorp hold nearly 200 tonnes of gold jewellery, which is higher than the gold reserves of Singapore, Sweden or Australia.
India accounts for approximately 30% of the global demand for gold, a true-and-tested source of insurance for millions of families that have little access to other forms of social security. What is true for India is even more so for Kerala, where 200,000 people are employed in the gold industry. The metal's fungibility makes it an ideal collateral for over-the-counter loans.
Muthoot Finance holds 116 tonnes of gold as security for its loans; Manappuram Finance has 40 tonnes and Muthoot Fincorp, 39 tonnes. The trio's combined holdings are 195 tonnes. To put things in global perspective, Singapore’s gold reserves are 127 tonnes, Sweden's 126 tonnes, South Africa's 125 tonnes and Mexico's 123 tonnes.
Muthoot Finance, the largest of Kerala's gold loan companies, holds more yellow metal in its vaults than the reserves of Greece (112.4 tonnes), Australia (79.9 tonnes), Kuwait (79 tonnes), Denmark (66.5 tonnes) and Finland (49.1 tonnes).
India, according to the World Gold Council, has the 11th largest gold reserves, with 558 tonnes. The US heads the pack with 8,134 tonnes, while Germany and IMF come next (3,384 and 2,814 tonnes, respectively).
“Historically, Malayalis have excelled in financial services as an ethnic group. The size of these companies reflects their innovative skills. Gold loan business also reflects Malayalis’ hunger for gold and the strong dowry system which feeds gold and gold loans,” said CJ George, founder and managing director of stock broking firm Geojit BNP Paribas.
It was even better a couple of years ago. Muthoot Fincorp, which has a gold loan portfolio of Rs 85.50 billion, then had 41 tonnes of gold in its vaults.
“Then, two things happened – gold prices declined and banks became aggressive in gold loans. As gold prices declined, our business also came down slightly, reflecting on our gold holdings,” said Thomas John Muthoot, chairman and managing director of Muthoot Fincorp.
