Chit Funds and Informal Credit in India
Pawnbrokers and Loans Against Property
Pawnbrokers lend against gold and household items, giving quick cash without credit checks.
Lending against something you own is the oldest form of credit.
How it works
A borrower pledges an item, such as jewellery, and receives a loan smaller than its value.
Redemption
If the loan is repaid with interest, the item is returned; if not, it may be sold.
Speed
Because the lender holds security, approval is very quick.
Regulation
Pawnbrokers are regulated by state laws, and banks and finance companies also offer gold loans.
Gold as a cushion
A family pledges a chain to pay school fees and reclaims it after the harvest.
Assuming pledged items are always safe
Failure to repay can mean losing them.
Key takeaways
- Pawn loans use collateral.
- Approval is quick.
- Unpaid loans can lead to sale of items.
- State laws regulate pawnbrokers.
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