The company’s biggest challenge now is keeping rivals at bay, with gold hovering near a record high. Competition is heating up after Bain Capital agreed to pay about US$500m for an 18% stake in gold lender Manappuram Finance. Mitsubishi UFJ Financial Group, meanwhile, is reportedly in talks to buy 20% of shadow bank Shriram Finance for US$2.6b. Muthoot Finance’s plan to expand its 7500-plus network of branches by up to 200 a year may not be enough to maintain its dominance as India’s top gold lender.
During a recent earnings call, analysts peppered Muthoot with questions about how the firm is going to deal with foreign competitors, as well as the local banks that are aggressively expanding their gold-loan portfolios. He shrugged off the queries, saying the overall market is expanding.
No country is as obsessed with gold as India, where households own about 34,600 tons, worth about US$3.8 trillion, according to Morgan Stanley estimates. That’s more than the holdings at the central banks of the US, Germany, Italy, France, Russia and China combined. For India’s population of 1.4 billion, that works out to almost 25g per person, valued at more than US$3250 at current prices. (By contrast, the country’s gross domestic product per capita is just US$2820, according to the IMF.)
Gold is deeply ingrained in India’s culture, often linked to Hindu religious rites. Photo / Dhiraj Singh, Bloomberg
Gold is deeply ingrained in India’s culture, often linked to Hindu religious rites. Dhanteras, celebrated at the start of the Diwali festival of lights, is a popular day to buy gold and worship Lakshmi, the goddess of wealth. Weddings are also ripe for purchases, with brides typically lavished in gold bangles, bracelets, rings and necklaces.
The practice of using gold as collateral for loans dates back centuries. Long before the Muthoots set up shop, small jewellers would offer cash to help clients get through rough patches. The size of the loan – sometimes as little as US$17 – is tied to the jewellery’s worth. Higher gold prices boost their value, which leads to bigger loans – and more interest income for lenders like Muthoot Finance.
“It’s much easier to borrow from Muthoot,” said Sandarsh, a 27-year-old driver in Bengaluru who asked to be identified only by his first name. He took out a loan of about 500,000 rupees in 2023, using half of his family’s gold stash. He was charged 1.25% a month, cheaper than the rate offered by State Bank of India, he said. He used the money to invest in a biryani business, which ultimately failed, though he repaid the loan.
George Alexander Muthoot shows photos of Ninan Mathai Muthoot, founder, left, M. George Muthoot, founder of banking, center, and M.G. George Muthoot, group chairman at the company’s headquarters in Kochi, in October. Photo / Sameer Raichur, Bloomberg
The Muthoot clan is Orthodox Christian, a tiny minority in the predominantly Hindu nation. The family’s given names are usually English, and George is particularly popular. Nine of the 15 company directors are named George. Muthoot and his brothers are the 19th generation of the family line.
Their business model is surprisingly simple. Clients bring their jewellery to a branch, where staff check the gold content before making a loan of up to 75% of the value. A minimum of 18-carat gold is required. To gauge purity, staffers rub the piece against an obsidian testing stone – called a Kasauti – to create a faint streak, before adding a nitric acid solution. If the line disappears, it may signal a fake, or low-quality gold. Borrowers typically take out loans for four to 12 months, before reclaiming their heirlooms after repaying the money. Muthoot Finance charges 1% to 1.5% a month on the loans. Annualised rates can top 19%.
“We only finance used jewellery,” Muthoot said in an interview from his office in Kochi, the commercial hub of Kerala state at the southern tip of India. “Most of the gold is owned by the family. When they give it as collateral, they’d like to take it back.”
A Muthoot Finance branch in Kochi. Photo / Sameer Raichur, Bloomberg
Muthoot Finance branches are hardly ornate, considering the value of the assets inside. They tend to be in low-income neighbourhoods that are often shunned by major banks.
One branch in the financial hub of Mumbai is tucked away on a quiet side street behind a busy thoroughfare. A hardware store and mom-and-pop grocery shop sits next door, where hawkers selling custard apple and papaya park their carts.
The outlet is protected by a sliding metal grille, like an old-fashioned elevator door. Its facade is adorned with the bank’s logo of two elephants facing each other, their curled trunks forming an “M” for Muthoot. Along the wall are bright red posters of actor Amitabh Bachchan, a brand ambassador and one of India’s biggest Bollywood stars, cupping his hands in a traditional namaste greeting.
A security guard, cooled from the searing heat by a fan duct-taped to a small stool, locks the door with a heavy padlock whenever a customer enters. After clients are scanned with a hand-held metal detector, they’re served by staff from behind glass partitions.
Once the jewellery is deposited, it’s stored in the branch’s vault, whose doors are controlled from the company’s head office. The entire process takes less than an hour, and no credit history is required. The tight security is essential: Muthoot Finance held 209 metric tons of gold for clients – worth almost US$28 billion – slightly more than the gold held in Singapore’s official foreign reserves.
Clients bring their jewelry to a branch, where staff check the gold content before making a loan of up to 75% of the value. Photo / Sameer Raichur, Bloomberg
Outstanding gold loans by the Keralite firm rose to 1.25 trillion rupees at the end of September, topping the 725.5 billion rupees in similar loans made by State Bank of India, the country’s largest lender. Still, SBI’s gold loan book jumped 87% from the previous year, faster than Muthoot Finance’s 45% growth rate.
While Muthoot Finance has dominated the business of gold financing, the company could do more to sell other products to diversify its revenue, said Parijat Garg, a Mumbai-based credit consultant who has tracked the company for a decade. Gold loans account for close to 90% of the group’s business, which also includes home financing and insurance.
“If I’m a gold loan customer, I may have insurance needs, I may have remittance needs,” Garg said.
Though the firm’s customers often have low incomes, defaults are rare. Muthoot’s non-performing loan rate of 2.3% is in line with commercial banks, which are subject to stricter regulations. Jewellery seized from any default is sold at auction.
The steady growth has led to three straight years of stock gains for the company, including a 73% rally this year. As a result, four family members have more than doubled their fortunes. Three of them each hold at least 10% of the firm, which now has a market value of almost US$17 billion.
The clan is already grooming the next generation, according to Muthoot. Asked whether female family members can one day run the business, he said it’s a “sensitive” matter.
“They get married, they go to the husband’s family,” he said.
Among his three deputies are George Muthoot Jacob, a 42-year-old nephew who holds law and business degrees from England.
Asked why he returned home instead of staying in the UK like so many other well-heeled Indians, the younger Muthoot seemed surprised by the question.
“We have a great family business here,” he said.
With assistance from Preeti Soni, Siddhi Nayak and Harry Suhartono.
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