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The recent economic boom and crash has sent shock waves throughout the economy, creating radical change in business paradigms, consumer demands, and even in economic cultures themselves. One of the greatest changes in the developing world has been a change in the people’s relationship with gold. Since the days of the Roman empire, gold has been seen as both a designer luxury and an immense store of value, and because of its portability and use as jewelry, gold has been a traditional fashion and savings account for people in Eastern Europe, India, and other foreign countries for a very long time.
But lately, old habits seem to be dying fairly easily. The pawning of gold, which has for a long time been perceived as shameful, is rapidly becoming an acceptable practice. In India, for example, this long-held tradition is being replaced by gold loan businesses, which offer personal and business loans with gold as a security for lower interest rates than one would have access to with an unsecured loan.
Many of the borrowers are women, who are now becoming more active members of society and are looking for ways to finance things such as holiday trips, children’s educations, and down payments for homes.
Private lenders in India are making a killing off of this new trend. Once a very small industry, the gold loan business has taken off and is now a booming trend in India. The business is an easy way for people in impoverished areas to gain access to quick credit. This is not to say that credit comes cheap; many of these gold loan businesses charge interest at rates as high as 18%; higher than many of the credit cards we are familiar with.
While this may seem a bit harsh, this is still a great leap forward both culturally and economically for people in the third world. Historically, informal lending practices such as these are the beginnings of developed credit markets in later stages of development. This helps people like those in rural India gain access to the credit that they need to begin building futures for themselves and their children.