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Disrupting Gold

Gold this week continued its flat 2018, falling across global markets and in India.

Hedge funds that bet big on its rise this year have cut back on their gold, but this is only one small blip in a long-term cycle. Gold has been a stable asset, and there is no country where its allure is as strong as India.

Indian private gold holding is estimated at a mind-boggling $600 billion, one of the largest in the world. Most of it lies in private households, is usually unproductive and is a large portion of household wealth.

Despite such a large asset base, it is estimated that only 10% of this is monetized as collateral. A large portion of this is through disorganized moneylenders, who charge exorbitant interest rates.

A massive market which is highly disorganized and is stuck in legacy is a “golden” opportunity for change (ergo, disruption).

The unlocking of gold is a truly Asian problem, with a possible comparison being the unlocking of real estate in the US market.

Passive assets, held for value (or emotional attachment) and opacity in the market are classic real estate problems. The Airbnbs and the WeWorks of the world are helping unlock asset value in real estate – despite real estate being far less liquid or easy to benchmark v/s gold.

From an early stage business perspective, there is no clear parallel for unlocking gold’s value globally and that makes it hard and simultaneously lucrative.

An interesting statistic is that gold as an asset is largely rural and dominated by southern states.

This makes the target segment and delivery mechanism very different from the customers of Indian consumer startups today.

The companies will have to operate with a consumer experience that makes the customers feel comfortable, without the complex English interfaces that most companies today have. Given the monetary and emotional value associated with gold, companies necessarily need to build trust with the consumer.

Companies with vernacular delivery in a familiar environment are likely to succeed.

One of the most well-established ways of monetizing gold is through gold loans, which companies like Muthoot are legendary for.

The size and disorganized nature of the opportunity allow for more players, and startups like Rupeek are beginning to fill the void. Moneylenders have been found to charge interest rates as high as 50%, given the nature of the market.

From a consumer perspective, pledging gold for a loan with a reasonable interest rate (unlike 50%), that can be delivered quickly by a trusted company is a great value proposition.

From a business perspective, facilitating or backing that loan and earning via interest is excellent. The biggest roadblock, as in parlance, is customer acquisition – people are loath to part with their gold. 

There thus need to be ways that are more creative, and economically sustainable, that deliver to a larger group of customers.

For example, gold jewellery in India is focused on traditional wear and not everyday wear – startups like Melorra could help ensure gold being put to work is being worn more often.

Providing alternate instruments to holding gold (e.g. the gold bond) or providing more use cases via education could help companies put more gold back into circulation. There is a clear need for a fresh, nimble approach to this sizable problem.

I believe Indian startups could very well pick up the slack, with a necessarily Indian approach.

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2 years ago

very useful article

2 years ago

Nice One