In early August, Peter Johnson watched as the price of gold soared to more than $2,000 an ounce, the highest it had been in more than a decade. He was ecstatic: The sharp increase meant his wife’s jewelry was now worth almost twice as much as when he pawned it last year. Johnson, a 43-year-old father living in southern India, has never earned enough to support his family of four. For the past 15 years, pawning gold heirlooms has kept him afloat, allowing him to do everything from pay rent to put his children through school. Whenever he needed cash, Johnson would simply find a bank or pawnbroker. “You name a place, I would have gone there,” he said.
But in the middle of a global pandemic — when visiting pawnshops posed a health risk — Johnson instead turned Rupeek. The startup, which raised $60 million from investors earlier this year, promises gold loans delivered right to your doorstep. Rupeek is part of a wave of Indian companies that are digitizing the centuries-old practice of borrowing against gold. The trend could ultimately help millions of unbanked Indians enter the formal credit market, jump-starting economic growth. And during the coronavirus pandemic and subsequent financial downturn, business is booming.
Using the company’s app, Rupeek users request a loan from a few motorcycle-riding loan agents, who come equipped with a metal-testing kit, a scale, and a proprietary computer-vision tool that promises to measure the purity of any gold object. Johnson, who pawned 108 grams of gold through Rupeek in May, said the company takes pictures of borrowers wearing the jewelry. After a quick credit check, Rupeek’s lending partners— private Indian banks — process the loans electronically. The entire transaction takes around 30 minutes. As the agents zoom away, Rupeek tracks their location in real time, until the collateral is safely deposited in the bank’s vault.
Covid-19 has wreaked havoc on the already struggling economy of India, a country where traditional bank loans can be difficult to obtain. Now, cash-strapped consumers are turning in greater numbers, instead, to the growing gold-loan industry. Since the pandemic began, Indian banks that previously demonstrated little interest in gold loans have rushed to offer them at low interest rates. In July, Muthoot Finance, the largest gold lender in India, introduced its own delivery service to compete with upstarts like Rupeek. The company expects its gold-loan business to grow by as much as 20% this year overall.
Gold has long played an important role in Indian culture; Hindus give the precious metal as a religious offering in temples. Though India doesn’t produce much gold itself, it’s one of the world’s largest consumers of it, buying more than 700 tons annually. Private Indian citizens have stockpiled an estimated 25,000 tons of the metal, about three times what the United States government has in its reserves. A large percentage of India’s gold is held in the form of jewelry, often gifted to female children at birth and later included as part of their dowries.
Wealthy Indians invest in gold as a way of storing assets and avoiding taxes, while the poor and middle class use it as collateral for borrowing money in times of financial distress. Many still take out loans through sahukars, informal money lenders from privileged communities and castes, who sometimes charge exorbitant fees and interest rates. In recent years, firms like Manappuram Finance, one of the largest financial lenders in India, have helped professionalize the business. The company offers consumers quick and easy gold-backed loans at thousands of branches across the country. (But unorganized lenders still remain in control of 65% of the market.)
“You call it a poor man’s credit card,” said V.P. Nandakumar, the CEO of Manappuram. Most of his customers are self-employed businessmen or farmers, who borrow an average of $612 a few times a year. Nandakumar said that less than 1% of people fail to repay their loans and lose their gold. (Defaulter’s values are auctioned off.). The items pledged hold a lot of sentimental value, Nandakumar explained, and borrowers are eager to get them back.
India’s two biggest gold lenders collectively hold more than 248 tons of the precious metal — more than countries like Sweden, Finland, and Australia store in their reserves. It’s not exactly an easy market for startups like Rupeek to enter, but the company does have one distinct advantage: Its delivery model is more discreet than showing up to a pawnbroker in person. For many first-time borrowers, it’s embarrassing to be seen pawning gold. “They feel like scum of the Earth,” said Sumit Maniyar, who founded Rupeek in 2015. A former JP Morgan analyst, he saw an opportunity to help people avoid the stigma associated with gold borrowing.
When I met with Maniyar in his Bengaluru office in February, India had yet to go into lockdown. Maniyar is soft-spoken, with a calm demeanor reminiscent of a meditation teacher. A few days earlier, Rupeek had announced that it had raised tens of millions of dollars from investors, some in Silicon Valley. Maniyar told me Rupeek was trying to expand into India’s smaller towns.
Then the coronavirus pandemic arrived, and India went into one of the strictest lockdowns in the world, forcing many newly unemployed migrants to walk long distances home to their villages. Rupeek laid off 600 contract employees, some of whom said they were treated unfairly. But as the economic crisis unfolded and many people’s incomes evaporated, demand for gold loans began exploding. Rupeek issued more than $500 million in loans between March and December, up from just $24 million during the same period last year. “You are saddened by the fact that the world is going through so much pain, but it’s good for business,” Maniyar said in August, this time over Google Meet.
When Maniyar founded Rupeek five years ago, it wasn’t obvious that the business could work. “People said, ‘Are you crazy?’” he told Rest of World. His proposal was simple: Disrupt traditional metal appraisals done by skilled jewelers by introducing a computer-vision tool that could be used by anyone. Gold lenders like Manappuram employ in-house experts who specialize in assessing purity. Only they could perform the evaluations necessary to make loans, which meant consumers had to visit physical Manappuram branches. Rupeek’s tool, the startup claims, automatically assess the purity of gold by excluding enamel, paint, diamonds, and other materials that may be present.
It took several years for Rupeek to perfect its gold-appraisal and transport system, which the company declined to discuss in detail. The technology was convincing enough for Federal Bank, a major Indian commercial bank, to partner with Rupeek in 2018. (The Indian government doesn’t allow startups to administer loans without a license, which meant Rupeek needed to find traditional partners to operate.)
But so far, the biggest problems Rupeek has solved are operational. Transporting gold is a risky business, so Rupeek built a way to track agents’ movements. It began storing gold in special packages sealed using machine-readable stickers that prevent tampering. The company also hired a team of data scientists to quickly assess the creditworthiness of customers. Their calculations are sent to partner banks in real time, reducing the loan-approval process to a mere half an hour. Rupeek also has an effective, if not very technological, solution for accountability: Send more than one agent on each delivery. Introducing redundancy lowers the chances of a single loan agent going rogue, explained Japan Doshi, Rupeek’s head of product and data science.
But contrary to Maniyar’s claims, fully automated gold appraisal remains a pipe dream. Doshi admitted that Rupeek has “not yet automated the appraisal.” While the company does use some computer-vision technology, it’s still working on a fully digital prototype that can assess golds without human intervention. Until it’s ready, professional metal valuers won’t be out of work.
Meanwhile, Rupeek’s traditional competitors are now using more tech themselves. “When the pandemic began, it was an opportunity,” said Arvind Sahay, chairperson of the Indian Gold Policy Center. Technology is going to be used more and more, he explained: “It’s an absolute no-brainer.” Manappuram, for example, has put more than 60% of its gold-loan portfolio online. Customers can pledge their jewelry at the nearest branch and instantly receive up to 75% of its value in cash through an app that has more than seven million users. The company also now offers delivery loans in cities like Bengaluru and Chennai. “What we’re trying to do is move from brick-and-mortar branches to virtual branches,” Nandakumar said.
For Johnson and many borrowers like him, digital gold loans have become an essential part of their financial lives. “It’s very useful when I’m in urgent need of money,” he said. But he worries the large bag carried by Rupeek agents may still give away his habit. To save himself from the peering eyes of nosy neighbors, Johnson said, he sends loan agents to his office instead of his home.
More important than avoiding embarrassment is ensuring he redeems all his gold in the next few months. “There’s pressure from my wife,” he said.