India is known for its unique love of gold. South Asian households are estimated to own a total of more than 25,000 tonnes of gold, whose current value is approximately half of the country's nominal GDP. Many of this gold was stored in large metal wardrobes and locked away for decades.
Indians from all socio-economic backgrounds have preferred to save their money or at least some of it in gold for generations. India is one of the largest importers of gold, and Indians have more gold than any other nation.
Indians use their gold as a savings tool, which protects them against the fluctuations of the financial markets, and also as an asset against credit. But, selling your gold as jewelry or other means of payment can be stigmatizing. It could mean that one is so poor they have to pawn their last financial security asset.
Another problem with gold is its insecurity.
Indiagold, a startup that aims to make it easier for people to put their gold to good use, announced Friday that it raised $12 million in Series A funding. Prosus PayU, which usually only backs deals at later stages and Falcons Alpha Wave Incubation fund (AWI), led the new financing round. The round saw participation from Better Tomorrow Ventures and Rainmatter Capital as well as existing investor Leo Capital. This brings the total raise for startups to $14 million.
Indiagold, founded by Deepak Abbot and Nitin Misra, former executives at Paytm, is a digital alternative credit platform that focuses on gold in the second largest internet market. This startup uses gold to determine creditworthiness and provides APIs to banks and lenders who want to access this market.
Today, the startup offers two main offerings. It makes it easy and affordable to store your gold in safe lockers and allows you to borrow against your gold reserves.
After an individual signs up for Indiagold, agents from the startup come to their home, weigh and inspect the gold, and then put it into a tamper-proof bag with an RFID sticker. They then place the bag in a steel container and ask the customer to lock it using their fingerprint. Indiagold app shows the agent's journey to the vault location as they leave the premises.
Customers will find it easy to store their gold in a locker. Most people are reluctant to part with their gold jewelry because of the stigma associated with yellow metal. Indiagold has developed a process that allows them to gain the trust of their customers.
In an interview with TechCrunch, Misra said that trust is the foundation of this business. He said that unlike the norm in startup circles where people are expected to move quickly and break things, our business requires us to spend time with customers in order to build trust.
Indiagold offers lockers for a very affordable price, just a few dollars per year, instead of hundreds that are taken by banks. Indiagold offers insurance coverage to protect customers' gold, unlike banks.
Indiagold app allows customers to see the real-time value of any gold items that they have stored in their locker. If customers require it, this is when the startup's second offering kicks into effect. The startup provides a line credit within 30 seconds to customers who need to borrow money.
India's large market for gold as loan collateral is still largely untapped.
Despite large gold reserves in India, the gold loan market has only scratched the surface. Muthoot Finance holds 166 tons of gold collateral, which is less than 1% the Indian household's estimated gold reserves (25k tonnes). Analysts at Bernstein explained that gold is a family heirloom, and is passed down generations in a report to clients earlier in the year.
Customers can borrow against the amount of the gold they have in their locker, but only for the part that is not already spent. They are also confident that no one will steal their jewelry because their gold items are linked to their biometric.
Indiagold has faced many other challenges this year, as if changing consumer behavior was not enough. Misra and Abbot said that the second coronavirus wave decimated 70% of Indiagold's business in just a few days. Misra said that we have been through many things in our short journey.
He said that business had reached an all-time high by the end of the first half this month.
Indiagold's unique doorstep product, the gold loan and locker products, not only provide unparalleled customer service but also allow it to offer credit at lower rates. Indiagold's rapid growth is testament to its product capabilities and the extensive experience of its founders. In a statement, Navroz D.Udwadia, cofounder of Falcon Edge Capital said that we believe the gold loan market has potential for disruption.
The startup is currently operating in Indore and the National Capital Region. It plans to expand to 10 other cities by the end the financial year. They also stated that they are working on expanding their product range. PayU stated in a statement it would explore collaboration with Indiagold to expand its product offerings.
A few startups are exploring the Indian gold market. Jar, a Bangalore-based startup, was founded in this year to help young people start their savings journey by investing digital gold.
