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India has a unique fascination for gold. The households in the South Asian market are estimated to have a stash of over 25,000 tons of the precious metal whose value today is about half of the country’s nominal GDP. But much of this gold has been sitting idly in lockers in big metal wardrobes for generations.
For generations, Indians across the socio-economic spectrum have preferred to stash their savings — or at least a part of it — in the form of gold. In fact, such is the demand for gold in India — Indians stockpile more gold than citizens in any other country — that the South Asian nation is also one of the world’s largest importers of this precious metal.
Indians use this gold not only as a savings instrument, which protects them from the ups-and-downs of the financial market, but also as an asset against which they could get credit. However, selling off your gold in the form of jewelry or otherwise has a stigma attached to it — "one is so broke that they had to pawn off their last asset of financial security."
The other challenge with keeping gold in the house is that it’s not safe.
Indiagold, a young startup that is attempting to help people put this gold to use, said on Friday it has raised $12 million in its Series A funding. The new financing round was led by Prosus’ PayU -- which typically only backs later stage deals -- and Falcon’s Alpha Wave Incubation (AWI) fund. Better Tomorrow Ventures, 3one4 Capital, Rainmatter Capital and existing investor Leo Capital also participated in the round, which brings the startup's all-time raise to $14 million.
Indiagold -- founded by Nitin Misra and Deepak Abbot, two former executives of Paytm -- is building a gold-focused digital alternative credit platform in the world's second-largest internet market. The startup is using gold to determine the credit worthiness of its customers and providing APIs to banks and other lenders that want to reach this untapped market.
The startup today has two major offerings: It has made it very easy and affordable for people to keep their gold in safe lockers, and it’s enabled them the option to take a loan against their gold reserves.
Once an individual has signed up on Indiagold, the startup’s agents come to their house, inspect and weigh the gold and put it in a RFID-sticker-attached tamper-proof bag. Then they put this bag in a steel box and get the customer to lock it with their fingerprint. As the agents leave the premises, Indiagold app provides a live feed of their journey to the designated vault location.
The idea is to make it very simple for customers to put their gold in a locker. Traditionally, because of the emotional stigma attached to the yellow metal, most people have hesitated to do anything with the gold jewelry they own. Indiagold has devised a procedure that helps them gain trust of their customers.
"This whole business is built around trust," said Misra in an interview with TechCrunch. "Unlike a norm in some circles of the startup ecosystem where you are expected to break things and move fast, in our business we have to spend time with customers to build that trust," he said.
Indiagold also offers their lockers at a much affordable price -- just a few dollars a year, as opposed to hundreds taken by banks. And unlike banks, Indiagold protects the customers’ gold with insurance coverage.
Customers have access to Indiagold app where they can see real-time value of the gold items they have put in the locker. This is when the startup’s second offering kicks in, should customers need it. In the event these customers need to take a loan, the startup facilitates a line of credit to them within 30 seconds.
Tapping on gold as a loan collateral is a very large market in India -- and also one that remains largely unscratched.
"Despite the large gold reserves held by Indian households, the gold loan market has barely scratched the surface. The gold collateral (166 tons) held by Muthoot Finance is less than 1% of the estimated gold reserves in Indian households (~25,000 tons). This is because gold is seen as a family heirloom and passed along generations," analysts at Bernstein wrote in a report to clients earlier this year.
Customers have the freedom to take loans against only parts of their gold reserve they have stored in the locker. And because they know that their gold items are tied to their biometric, they are confident that nobody is breaking into the locker and melting their jewelries.
If changing consumer behavior wasn't a big enough task already, Indiagold this year has grappled with several other challenges. The devastating second wave of the coronavirus wiped 70% of its business within days, said Misra and Abbot. "We have gone through a lot in this short journey," Misra recalled.
But by the first half of this month, business had climbed to an all-time peak, he said.
“Indiagold’s unique doorstep gold loan and gold locker products not only offer unparalleled customer experience but also enable it to offer credit at more affordable rates. The traction Indiagold has seen in a short time is a testament to its superior product capabilities and the deep experience of its pedigreed founders. We believe the gold loan market is ripe for disruption and are thrilled to back Indiagold’s founders," said Navroz D. Udwadia, co-founder of Falcon Edge Capital, in a statement.
The startup, which is currently operational in the National Capital Region and Indore, plans to expand to 10 cities by the end of the financial year. The duo said they are also working to broaden their product offerings. PayU said in a statement that it will explore ways to collaborate with Indiagold on some product offerings.
A handful of startups are beginning to explore the gold opportunities in India. Bangalore-based Jar, founded this year, is helping young users start their journey of savings by investing in digital gold.