Tuesday, April 5, 2011

World Gold Council Gets Behind Gold-Based Microfinance

I'm sure you've heard of microfinance, where savers join a saving circle from which borrowers in the same circle can take out small loans that are approved of by the circle. It's a way of getting credit circulating amongst people who the banks don't see as worthwhile lending to.

Normally, microfinance is pushed for borrowing purposes. That's not the purpose of the World Gold Council setting up gold-linked microfinance in India: it's to provide access to gold for people who can't afford it on their own.
World Gold Council (WGC) is now in talks with a number of micro-finance agencies or non-banking financial companies (NBFC) across India to promote gold-linked micro finance scheme. The idea is to promote such schemes in the farthest corners of India so that the person at the bottom of the pyramid can access gold in an affordable and attractive way. At present there are more than [150,000] consumers enrolled in these gold-linked micro finance schemes across India.

WGC spokesman told Financial Chronicle, “At present, WGC is running projects in the country in association with Muthoot Pappachan Group under the “Swarna Varsham” scheme and IFMR Holdings’ Kshetriya Gramin Financial Services. In the fourth quarter of 2010, microfinance institution Mimo Finance also launched a gold-linked microfinance pilot programme called Mimo Swarn Yojana in North India, which we plan to extend to its entire network after the completion of the initial pilot phase”....
The targeted savers are people in low-wage white collar and labouring jobs.

It's a good idea, and it's duplicable in North America. In Canada, up to twenty-five people can form a recognized investment club and pool their funds into a single brokerage account. Discount brokerages do sell gold certificates, and an investment club can be used to get around the minimum purchase barrier. Although this approach does result in co-owning paper gold, it does have the advantage of avoiding the large premiums on fractional coins.

In the United States, forming an investment club is a little more complicated. In both countries, the legal form used is typically a limited partnership.

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