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Learn How to Start a Gold Loan Company

Starting a company is easy, just read and learn how to start your own gold loan company in just 20 days with out step-by-step guide. Read to start your entrepreneurial journey today.

31 Mar,2023 11:00 IST 2892
Learn How to Start a Gold Loan Company

Gold has remained one of the most popular assets for centuries. The yellow metal is not only predominantly used in making jewellery but it also acts as a hedge against inflation and is thus a valued asset for investment.

In India, borrowing money against gold jewellery and other gold articles has been in practice for a long time, though the market for gold loans has become far more organized and competitive in recent decades.

Now, there are dozens of banks and non-banking finance companies (NBFCs) as well as countless unorganised lenders that are actively engaged in providing gold loans. In towns and rural areas of India there is a huge demand for these loans. This has increased the number of specialized gold loan companies in India.

Gold loan companies can earn strong profit margins. In towns and villages, gold loan companies mostly carry out their business through a handful of franchises and brokers. This saves establishment cost, overhead cost and staff cost. So, gold loan businesses have an added benefit of low operational costs.

From the borrower’s standpoint, gold loans are preferred by many people because of the easy loan application process and minimal documentation involving just an application form and a handful of documents.

Starting A Gold Loan Company

Entrepreneurs or businesspeople interested in starting a gold loan business in India can function through NBFCs and credit cooperatives. However, getting a license to start a non-banking finance company from the Reserve Bank of India (RBI) is one of the most difficult tasks. The easiest option to start a gold loan business is through Nidhi company registration.

Before getting into what a Nidhi company is, let’s be acquainted with the essentials if one is planning to start a gold loan business in India. They are as follows:

• A gold loan business requires a considerable amount of investment. Based on the type of business, the expenses vary significantly.
• Setting up a gold loan company involves finding a location, purchasing equipment and hiring people.
• The next important thing is to obtain a business license. It is impossible to start a gold loan company without an approval from the RBI. However, at the start-up level a practical alternative to an RBI-issued gold loan NBFC license is a money-lending license or setting up a Nidhi company.

Nidhi Company

A Nidhi (National Initiative for Developing and Harnessing Innovations) company is a type of NBFC whose objective is to help people save and invest more. These companies enable easy lending and borrowing among its members. A Nidhi company requires at least seven members to start and these may solely include members of the same family.

A Nidhi company does not extend any form of unsecured loans. So, unsecured loans like personal loans, microfinance credit, etc. are not within the ambit of a Nidhi company. Instead, a Nidhi company offers loans against securities like gold, silver and property.

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Registration Of Nidhi Company

A Nidhi company can be started with at least seven people and an initial capital of Rs 10 lakh. Generally, it takes 10 to 15 days to register a Nidhi company. The steps involved in the registration of a Nidhi company are:

Step 1:

Gather all the required documents for gold loan such as ID proof, address proof, etc. and apply for digital signatures for all the directors and shareholders of the company.

Step 2:

As per law, every director should have a Director Identification Number (DIN). As every Nidhi company must have three directors by law, applications should be put for three DINs.

Step 3:

The next step is to apply for approval of the company’s name. It is the responsibility of the Ministry of Corporate Affairs to approve the name of a Nidhi company.

Step 4:

The next step is to file for company incorporation. Here all the documents are prepared and sent to the MCA.

If everything is fine the government will issue the registration certificate.

Although a Nidhi company is limited to the advances made by its members, meaning a restricted scope of expansion, getting associated with a Nidhi company is beneficial in many ways. As compared to other types of finance companies, the process of registering a Nidhi company is quite simple. Presently, it can be conducted online.

Unlike an NBFC which requires an RBI license and at least Rs 5 crore capital to start, the costs incurred in registration of a Nidhi company is roughly about Rs 50,000 with a capital of just Rs 5-10 lakh.

Conclusion

To operate a gold loan business in India, starting a Nidhi company is the best way to get started. Since no RBI approval is necessary to register a Nidhi company, one can start a gold loan business with just Rs 5 lakh capital. However, gold loans secured through Nidhi company are subject to certain rules and regulations.

Gold loans in India are usually offered at lower interest rates than personal loans. Hence, they are popular for meeting short-term needs. There are many banks and financial institutions in India like IIFL Finance that offer gold loans. As long as one meets the eligibility criteria, any individual can apply for a gold loan from IIFL Finance by pledging their gold jewellery. IIFL Finance, one of India’s leading NBFCs, offers a hassle-free experience that allows borrowers to apply for loans online and even customise their repayment schedules.

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Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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