Abin Baby, an unemployed teacher from the town of Thodupuzha in the southern Indian state of Kerala, was in a bind. He needed money to cover some emergency expenses, but since he was out of work, he couldn’t easily get a loan from a bank. So in August he took a 14-gram gold bangle and used it as collateral for a six-month loan of 27,500 rupees ($402) from Muthoot Finance, one of the leading providers of gold-based loans in India.
Such loans are a primary way to borrow money in rural India, where gold is an especially popular gift at festivals and weddings and millions of poor people don’t use the banking system. The interest rate on Baby’s loan was 18 percent. Not having many options, he decided getting the loan was worth the expense. The transaction happened “quickly and smoothly compared to the banks,” he says.