Why Jewellery Is the Most Trusted Form of Collateral in India?
- Editor
- Oct 1
- 4 min read
by KarNivesh | 01 October, 2025
Jewellery in India is not just an ornament—it is wealth, culture, and security. For generations, families have trusted gold as a way to preserve prosperity, celebrate milestones, and protect themselves during hard times. Today, jewellery has become the most reliable and accessible form of collateral in the Indian financial system.
With Indian households owning around 25,000 tonnes of gold, more than the combined reserves of the top five countries in the world, jewellery is far more than a personal treasure—it’s a national financial safety net. This explains why India’s gold loan market is projected to grow from ₹6.68 lakh crore (USD 80.29 billion) in 2025 to ₹13.12 lakh crore (USD 157.60 billion) by 2031.
Let’s explore why jewellery holds this powerful position, from culture to economics, and how it continues to transform India’s financial landscape.
Jewellery’s Cultural and Emotional Foundation
Deep-Rooted Trust in Gold
Gold in India is tied to spirituality, prosperity, and blessings. In Hindu traditions, it is considered pure and is often offered in rituals. Weddings, festivals, and religious ceremonies almost always involve gold jewellery, reinforcing its sacred and financial value.
Brides in India receive about 300 grams of gold on average at marriage, symbolizing both family wealth and financial security. This creates a tradition of generational wealth transfer where jewellery is passed down and preserved.
Regional Affection for Gold
The love for jewellery is not evenly spread—South India dominates gold ownership, with Tamil Nadu alone accounting for 28% of India’s total gold reserves. This cultural preference has also made South India the largest gold loan market, where people often choose to pledge gold over taking any other kind of loan.
Family Heritage and Emotional Value
Jewellery often carries family memories. Instead of selling these pieces, people prefer pledging them for temporary loans. This ensures the jewellery remains in the family while still helping in emergencies. Women in India own around 24,000 tonnes of gold, representing 11% of the world’s total jewellery reserves. For many, this is not just financial security but also independence.
Why Jewellery Wins as Collateral
Liquidity and Stability
Gold is far more liquid than real estate or vehicles. While property sales may take months and cars lose value quickly, jewellery can be pledged immediately, holding stable value. This lowers risks for lenders and keeps interest rates competitive.
During FY2020–FY2024, the gold loan market grew at a 25% CAGR, proving how valuable this liquidity is during uncertain times.
Interest Rates and Accessibility
Interest rates on gold loans vary:
Public banks: 8.5%–12%
Private banks: 9%–18%
NBFCs: 9.5%–24%
Unorganized pawnshops: 24%–36%
Clearly, borrowers benefit by choosing formal institutions, where rates are far more affordable.
The RBI’s Loan-to-Value (LTV) ratio cap of 75% further ensures that borrowers get fair value for their jewellery while protecting lenders. In many cases, people can access up to ₹2 crore loans against jewellery.
Fast Processing and Easy Paperwork
Unlike property-backed loans that may take weeks, gold loans are disbursed within the same day. Documentation is minimal—just identity and address proof—making them highly accessible even to those without extensive financial records.
The Market Landscape
Organized vs. Unorganized Sector
Traditionally, pawnshops and moneylenders controlled about 65% of gold financing, but now organized lenders like banks and NBFCs are gaining ground.
NBFCs: 59.9% market share in retail gold loans (as of March 2024)
Public banks: 63% share in overall gold loans, mainly agricultural
This reflects a shift toward trusted, transparent, and regulated institutions.
Technology and Digital Gold Loans
Digital platforms are reshaping the market. Borrowers can now start applications online, use digital KYC, and complete verification quickly. With RBI allowing digital KYC, the process has become even smoother, especially for rural borrowers where banking access is limited.
Regulation and Consumer Protection
RBI has introduced strong rules to protect borrowers:
Standardized valuation in the borrower’s presence
30-day notice before auctioning jewellery in case of default
Clear documentation on purity, weight, and value
No loans against raw gold or ETFs—only jewellery and bank coins
These rules ensure fairness and transparency, reducing exploitation in the system.
Jewellery vs. Real Estate
When compared to property, jewellery clearly has advantages:
Processing Time: Gold loans = 1 day vs. property loans = 15–30 days
Paperwork: Minimal for jewellery, extensive for property
Interest Rates: Generally lower for jewellery
Accessibility: Jewellery is widely owned across all classes, unlike real estate
While real estate can offer higher loan values, jewellery’s speed, simplicity, and trust make it the go-to option in emergencies.
Future of Jewellery-Backed Lending
The organized gold loan market is expected to reach ₹10 lakh crore in FY2025 and ₹15 lakh crore by March 2027. Several factors will drive this growth:
Rising gold prices
Growing middle-class demand
Shift from unorganized to organized lenders
Digital innovations like AI-based gold valuation and blockchain tracking
With India’s deep cultural connection to gold, its financial role will only grow stronger.
Conclusion
Jewellery in India is more than just beauty—it is security, trust, and financial empowerment. With families owning massive reserves, gold has become a practical and emotional safety net. Its cultural roots, liquidity, simple loan process, and regulatory backing make it the most trusted form of collateral.
From farmers in villages borrowing small sums to entrepreneurs in cities accessing crore-level funding, gold-backed loans have democratized credit across the nation.
As technology and regulations continue to evolve, jewellery will remain not just a piece of heritage but also a bridge between tradition and modern finance—helping India preserve its cultural identity while powering its economic future.
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