Dubai: UAE’s small and mid-sized business owners can put their gold holdings to much better use, as more options open up to tap short-term funding needs.
On Thursday (November 24), Abu Dhabi based Finance House launched a scheme offering ‘instant loan facility’ for SMEs against their gold assets or existing gold-related investments.
This is claimed to be the MENA region’s first such loan facility. “Securing a bank loan remains one of their biggest challenges and a major hurdle to their development,” Finance House said in a statement. “The aim of Finance House’s SME gold loan is to provide finance-seeking entrepreneurs with faster, easier and cost-effective access to liquidity to meet their various business needs.”
Leveraging gold other than as a safe haven asset has been an underserved area for quite some time, even though the concept is extremely popular in South Asian economies. For Finance House, this is its second move into exploring possibilities with gold holdings. In January last, the investment firm became the region’s ‘first licensed lender’ to offer gold-backed loans to individuals in the UAE.
Extending that to offering gold loans to SME owners is a natural progression. What this also does is give what has been an 'idle' asset a chance to be of more help to their owners. Because the only way until now was for gold holders to sell when prices soar - like they have done repeatedly since early 2020. But at other times, these assets are just sitting there idle.
"As long as the borrower can provide suitable gold as a collateral for the loan, and is registered in the UAE, either as an SME or as an individual. They also have typically lower interest rates than other business loans."
Use of gold during Covid
According to market analysts, many SME owners in the UAE had dipped into their personal gold assets during the worst of the Covid disruption to pay off loans or for cashflow purposes. “Gold reinforced its status as the original safe haven during that phase, when prices touched $2,000 an ounce,” said a retailer. “These SME owners would come in to raise cash by selling their gold, which many had bought when bullion was $1,200-$1,300.
“What Finance House is doing is an acknowledgement of these trends. It could be that more lenders could launch similar schemes to get individuals and businesses to make better use of the gold they hold.”
Finance House’s gold loans will allow SME owners to borrow up to Dh1 million in cash, using gold whether in the shape of jewellery, coins or bars. (The value of gold at the time of its assessment determines the amount of money that can be borrowed.)
"Finance House found an opportunity for customers to benefit from more favourable gold prices and get immediate money for the value of an otherwise idle asset, without having to sell it," said T.K. Raman, CEO of Finance House. "We are extremely proud today to be pioneering another new segment in the UAE’s fast growing finance services sector, being the first licensed financial institution in the region to offer gold loans to both individuals and now also SMEs."
‘Digitised’ gold
The first steps have been taken in the digitisation of gold through issuing ‘tokens’. This too creates opportunities for asset owners to use this to raise cash.
SafeGold has struck a partnership with Dubai entity DMCC, whereby they will create an ‘ecosystem for gold-backed digital certificates’, first in the UAE and the across the region.
Investors can purchase physically-backed gold online, sell gold with ‘instant liquidity’ or gift to friends or family. They can also get physical delivery in the form of investment bars and coins, or exchange digital gold certificates for jewellery and earn a yield by leasing out the underlying gold.
"We see massive potential in the UAE’s technology and commodity ecosystem considering the nation’s strong affinity towards gold," said Gaurav Mathur, founder and Managing Director of SafeGold.
The options to make full and ready use of gold are starting to open up in the UAE. The only question is how soon will the target audience learn to do so…