• Around Tk200cr loans given by 400 mortgage shops in old Dhaka
• Almost all shops have outstanding loans of Tk40-50 lakh each
• About 10,000 gold-related shops in Tantibazar alone
• Mortgage business in downturn for last 2-3 years
• Monthly interest rate on mortgage is 3-5%
• People can borrow up to 90% of the market price of mortgaged gold
Gold mortgage business that was already in a downturn for the past couple of years is currently facing a serious crisis, as the number of borrowers has marked a sharp fall in recent months.
According to business insiders, there was a drastic rise in the number of people taking out loans by mortgaging gold ornaments during the initial few months following the outbreak of the novel coronavirus, but most of them have been unable to repay them due to financial problems induced by the pandemic.
Papon Das, owner of Ankon Gold House in the Tantibazar area of Old Dhaka, said, "In the first few days after shutdown was withdrawn, people borrowed Tk15-20 lakh every day by mortgaging jewellery. But now, there has been no buying and selling of ornaments at my shop, nor anyone came to take a loan."
Now people do not have enough gold left to mortgage and they do not have enough surplus money to buy gold either, he observed.
Mentioning that his rather small shop has given out Tk70 lakh in loans against gold since the Covid-19 pandemic hit the country, Papon said about 90% of the borrowers have not taken back their mortgaged gold although their loan repayment deadlines are already over. What is more, about 60% of them are not paying the interest and repeatedly asking for time to repay their loans, he added.
Amit Jewellers in Tantibazar, Old Dhaka has been trading in gold for about 31 years. Apart from making and selling gold ornaments, the shop has been giving loans against gold ornaments for several years.
Dipu Sarkar of Amit Jewellers told TBS the mortgage business was fairly good before the outbreak of the coronavirus, but now their customers have dropped by about 80%. On the other hand, the number of customers selling mortgaged gold ornaments has increased by 80% in this period, he added.
"Our shops remained shuttered for about three months at the beginning of the coronavirus outbreak. However, we were open for one day a week for those who wanted to borrow money against gold and the transactions were done on the same day.
"During the shutdown period, the number of such borrowers was higher compared to normal times. And those who had taken money before would also come and pay their interest. But as the coronavirus situation was coming back to normalcy gradually, the business began to decline. Currently, one or two customers come every day to mortgage their gold ornaments."
Dipu Sarkar said the number of customers selling gold ornaments has increased due to the recent surge in gold prices. "However, our mortgage business is more profitable than buying gold ornaments. And if gold prices go down, we have to face big losses."
He went on to say many of the customers who have borrowed money against gold ornaments are selling the mortgaged jewellery to pay off their debts.
An age-old business
India has institutionalised the gold loan market, with banks and non-bank financial institutions making special offers for loans for small businesses and households during hard times of Covid-19 pandemic. Organised gold loan, which helped many families and businesses overcome financial hardship during the pandemic, is expected to grow to $55 billion this year from $476 billion last year.
In Bangladesh, it is still largely an unorganised loan business regulated by trade licences issued by local government bodies.
"We have been doing gold mortgage business by obtaining a trade licence from the Dhaka South City Corporation," said Pradip Das, owner of BM Gold House in Old Dhaka's Tantibazar. Those who are involved in gold ornament business are eligible for this licence under certain criteria, he said.
It has been learnt that almost all jewellery shops in Dhaka's Tantibazar, Shakhari Bazar, Islampur, New Market, Gauchhia, Badda, Baitul Mukarram and several other areas are involved in loaning money against gold. Many of them do not do the business publicly and the transactions take place among their own clients.
However, such shops are found in large numbers in Tantibazar and Shakharibazar areas.
The gold mortgaging business has been going on in Tantibazar for about 400 years.
There are about 10,000 gold-related shops in Tantibazar Old Dhaka. Of these, about 3,000 shops are engaged in buying, selling and mortgaging gold ornaments publicly.
Around 250 jewellery shops in Tantibazar are involved in the mortgage business. The number of such shops is around 150 in Shakharibazar.
Almost all of the mortgage shops in these two neighbourhoods have outstanding loans of Tk40-50 lakh each that they disbursed during the coronavirus period.
Talking to traders, it has been learned that this business is going on openly or in secret not only in Tantibazar but also in different parts of the country. The interest rates of these mortgage loans usually range from 3-5% per month and 36-60% a year.
Many customers even have to pay interest up to several times the loan amount.
However, there are no specific guidelines regarding the legitimacy of this business.
Business in downturn for 2-3 years
Mentioning that the mortgage business has been declining not only because of the coronavirus but also for the last two-three years, Narayan Ghosh said there were only a few shops in Tantibazar in the past but now every gold shop is running this business either openly or secretly. "Therefore, the customer base of small traders like us is decreasing."
Referring to the fact that the gold business was almost completely closed during the shutdown, Pabitra Chandra Ghosh, treasurer of the Bangladesh Jewelers Association (Bajus) and general secretary of the Tantibazar Banik Samity, told TBS that towards the end of last year, sales were down by nearly 50% compared to normal times.
The business (sales of gold ornaments) has normalised to some extent.
The number of mortgage customers has decreased by about 80%, Pabitra Ghosh said, adding, "Many people who started this business with a small capital are going through difficult times. Many businesses have been forced to close down due to the declining number of customers and customers' not being able to repay their loans on time.
"Those who have a strong capital base may survive."
Experts for bringing the business under regulatory framework
Sayema Haque Bidisha, professor of economics at Dhaka University, told TBS that as there is no specific regulation in the age-gold mortgage business, customers' interests are often overlooked in this system.
"If customers can be brought in through financial inclusions in a formal way or if this system can be incorporated with keeping money in or borrowing from banks, then the amount of their losses can be reduced."
Noting that specific policies should be put in place to increase or decrease prices of gold, the economist said gold prices have gone up amid the coronavirus pandemic so many are selling their ornaments to pay off their debts.
Usually, middle-and low-income people save gold as a saving asset and take out loans by mortgaging it during the times of their needs. People adopted a strategy to use their savings during the pandemic and that involved the issue of gold mortgages.
Those who have been able to recover the income losses may have repaid their loans but those who are yet to recover their income losses are repaying their loans by selling the mortgaged ornaments.