The Schemes Around Gold — and the Risks They Don’t Advertise.

Jewellery Business Series - Episode 5 The Schemes Around Gold — and the Risks They Don’t Advertise Gold has always been marketed as safety. But the moment it is wrapped inside a “scheme”, the risk quietly shifts—from the jeweller to the customer, and from the customer to the balance sheet. Why Episode 5 Exists Till Episode 4, we spoke about how jewellery businesses are built : Manufacturing vs trading Job-work vs design ownership Cluster dependence vs in-house control Inventory behaviour and working-capital intensity Episode 5 shifts the lens.

This episode is not about lending to jewellers . It is about how gold-linked schemes distort balance sheets, cash flows, and risk perception —often invisibly. These schemes are marketed aggressively as: Savings Hedging Disciplined accumulation Smart investment But from a credit and risk lens, many of them behave very differently. The Core Question When money flows before gold or without gold , what exactly is being funded? Inventory? Advance from customer? Unsecured borrowing? Derivative exposure? Or pure working capital disguised as sentiment?

Scheme 1: Jewellery Advance / Monthly Gold Purchase Schemes Gold Scheme 1 How It Is Marketed Customer pays a fixed amount every month (6–11 months) Jeweller gives a bonus month / discount Gold is delivered only at maturity Taglines used : “Disciplined savings”, “Beat gold inflation”, “Safe because it’s gold” What Actually Happens on the Balance Sheet Item Behaviour Customer payments Immediate cash inflow Gold purchase Deferred Liability Shows up as Advance from Customers Usage of funds Often working capital , not earmarked gold The jeweller is not holding gold against the advance.

He is holding cash , free to deploy. Hidden Risk #1: Unhedged Gold Price Risk If gold prices rise sharply during the scheme period: Jeweller’s obligation cost increases Margin gets squeezed Liquidity stress appears suddenly at redemption This is short gold exposure , not savings. Hidden Risk #2: Mismatch Risk Short-term cash inflow Medium-term delivery obligation No mandatory hedge No escrow No asset backing From a banker’s lens, this behaves closer to unsecured public deposits than inventory-backed advances.

Examples : Jeweller / Brand Scheme Name Tenure Customer Pays Gold Delivered Key Benefit Marketed Banker’s Reality (Essence) Tanishq (Titan) Golden Harvest 10–11 months Monthly fixed amount At maturity Discount / extra benefit Customer advance → money before gold GRT Jewellers Golden Eleven / Flexi Plan 11 months Monthly instalments At maturity Making charge benefit Unsecured customer funding Joyalukkas Easy Gold Scheme 11–12 months Monthly instalments At maturity Flexibility + bonus Gold procured late Kalyan Jewellers Gold Savings / Easy Installment Plan 10–11 months Monthly instalments At maturity Savings + discounts Price risk sits with jeweller Malabar Gold & Diamonds Golden Bloom / Gold Purchase Plan 11 months Monthly instalments At maturity Reduced value addition Scheme inflows fund WC Lalithaa Jewellery 11-Month / Pre-Booking Scheme 11 months Monthly instalments At maturity Lower VA / bonus Quasi-deposit behaviour KISNA (Hari Krishna Group) Meri Roshni 10+1 10–11 months Monthly instalments At maturity Extra month benefit Delivery obligation unfunded Indriya (Aditya Birla Group) Gold Purchase Programs 10–12 months Monthly instalments At maturity Brand trust + offers Timing mismatch risk Pothys Swarna Mahal Golden Key / EMI Gold Plan 11 months Monthly instalments At maturity Making charge waiver WC illusion Bhima Jewellers Easy Monthly Advance Plan 11 months Monthly instalments At maturity No VA / bonus Funding disguised as CL Scheme 2: Gold Rate Freeze / Book-Today-Buy-Later Gold Scheme 2 How It Is Marketed Lock today’s gold rate Deliver jewellery later “Protection against price rise” What It Does Financially Creates derivative-like exposure Jeweller commits to future delivery at today’s price If price rises → loss If price falls → customer renegotiates or walks away This is a one-way risk for the jeweller.

Balance Sheet Distortion No visible derivative disclosure No MTM accounting No hedge accounting Risk sits off-balance-sheet For lenders, this risk is invisible but real .

Examples : Jeweller / Brand Scheme Name / Description Lock-in Period Customer Action Today Gold Price Applied What Is Marketed Banker’s Reality (Essence) Tanishq (Titan) Gold Rate Protection / Exchange Booking 30–180 days Partial / full advance Today’s rate Protection from price rise Forward gold obligation Kalyan Jewellers Gold Rate Protection Scheme 3–6 months Advance payment Locked rate Hedge against volatility Off-BS price risk Malabar Gold & Diamonds Gold Rate Fixing / Booking Plan 90–180 days Advance / token Booked rate Certainty in pricing Implicit derivative exposure Joyalukkas Gold Rate Freeze Plan Short–medium term Advance booking Fixed rate Peace of mind One-way price risk GRT Jewellers Gold Booking / Rate Lock Scheme Festival-linked Advance Locked rate Festive assurance Margin compression risk Bhima Jewellers Gold Rate Protection 1–6 months Advance Today’s rate Shield from gold rise Bank unknowingly funds hedge Jos Alukkas Gold Booking Scheme Short tenure Partial advance Frozen rate Smart buying Delivery risk if prices rise Regional Jewellers (Sowcarpet / Zaveri Bazaar) Informal Rate Lock Deals Ad-hoc Cash advance Agreed rate Relationship-based Completely unhedged exposure Scheme 3: Gold Savings Plans via NBFC / Fintech Tie-ups Structure Gold Scheme 3 Customer pays monthly NBFC / Fintech collects funds Jeweller delivers gold at end Platform earns fee Why This Is Riskier Than It Looks Jeweller is exposed to counterparty risk Settlement delays are common Chargebacks and cancellations spike during volatility Cash does not sit on jeweller’s books—but obligation does This creates liquidity illusion .

Platform / NBFC / Fintech Jeweller / Fulfilment Partner Customer Pays Gold Ownership During Tenure Delivery / Redemption What Is Marketed Banker’s Reality (Essence) SafeGold Multiple retail jewellers Monthly / flexible Platform claims pooled gold Physical gold / jewellery later Digital, safe, fractional gold Jeweller exposed to settlement & timing risk Gullak (Augmont-backed) Augmont + partner jewellers Monthly SIP Gold held with bullion partner Coins / jewellery on redemption Transparent gold savings Liquidity illusion for jeweller PhonePe Digital Gold SafeGold / MMTC-PAMP Flexible payments Platform-level pooled gold Transfer / physical delivery Convenience + trust Jeweller only last-mile fulfiller Paytm Gold MMTC-PAMP Flexible Pooled digital gold Physical delivery / sell-back Investment-grade gold Demand diverted from inventory Groww / Zerodha Gold SIPs Bullion custodians SIP-based Custodian-held gold ETF / physical option Investment discipline No WC support to jeweller Amazon Gold Savings SafeGold Ad-hoc / SIP Platform pool Coins via partners Ease + gifting Settlement dependency Regional NBFC–Jeweller Tie-ups Local jewellers Monthly instalments Often NOT segregated Jewellery at maturity Tech-enabled savings Counterparty & escrow risk What Is Structurally Different from Scheme 1 & 2 Aspect Scheme 1 Scheme 2 Scheme 3 Who collects money Jeweller Jeweller Platform / NBFC Who promises gold Jeweller Jeweller Platform + Jeweller Who controls cash Jeweller Jeweller Third party Risk to jeweller Liquidity Price Settlement & counterparty Why Scheme 3 Is Tricky for Bankers The jeweller looks insulated — but is actually exposed indirectly.

Key hidden risks: Settlement risk : Platform delays pay-out or delivery Chargeback risk : Customer cancellations routed to jeweller No balance-sheet visibility : Gold sits outside borrower’s books False comfort : “NBFC involved” ≠ risk transferred WC & Credit Implication (Very Important) From a banker’s lens: Scheme 3 does NOT improve working capital It does NOT fund inventory It does NOT reduce WC gap 📌 In fact: It may increase volatility of demand Reduce predictable cash flows Create sudden fulfilment obligations without cash control Scheme 4: Sovereign Gold Bonds (SGBs) – The Quiet Contrast Gold Scheme 4 What SGBs Do Right No storage risk No making charges No jeweller counterparty risk Government credit backing Interest + gold price linkage But One Important Point SGBs are not inventory substitutes .

They hedge wealth , not working capital . Banks should never confuse: “Customer investing in SGB ” with “Jeweller’s gold inventory stability” Scheme 5: Gold ETFs / Digital Gold Gold Scheme 5 Why Customers Like Them Liquidity Transparency Price tracking Why Jewellers Don’t No lock-in to physical jewellery Reduces footfall Shifts gold demand away from inventory-heavy models From a sectoral lens, this changes the demand curve for traditional jewellers.

Product / Platform Issuer / Custodian Customer Invests In Gold Ownership Convertibility to Jewellery What Is Marketed Banker’s Reality (Essence) Gold ETFs (Nippon, HDFC, SBI, ICICI) Mutual Funds / Custodians ETF units Fully backed, custodian-held ❌ No Pure gold exposure, liquidity Demand diverted away from jeweller Sovereign Gold Bonds (SGB) Government of India Govt bond linked to gold No physical gold ❌ No Safe, interest + gold upside Structural disintermediation Paytm Digital Gold MMTC-PAMP Digital gold units Platform-held pooled gold ⚠️ Limited Convenience, trust Jeweller only optional endpoint PhonePe Digital Gold SafeGold / MMTC-PAMP Digital gold Platform pool ⚠️ Limited Ease + flexibility No WC benefit to jeweller Amazon Digital Gold SafeGold Digital gold Platform pool ⚠️ Limited Gifting, simplicity Footfall erosion Groww / Zerodha Gold (ETF / SIP) AMCs / Custodians ETF / SIP Custodian-held ❌ No Investment discipline Inventory risk shifts away Gullak Digital Gold Augmont Digital gold Bullion custodian ⚠️ Optional Transparent pricing Jewellery becomes secondary Bank-sold Gold ETFs AMCs via banks ETF units Custodian-held ❌ No Safe asset class Banks fund outside jewellery ecosystem How Scheme 5 Is Fundamentally Different Aspect Schemes 1–3 Scheme 5 Customer money goes to Jeweller / Platform Capital markets / Govt Gold linked to Jewellery delivery Financial instrument Impact on jeweller WC Direct / indirect Negative (demand loss) Balance-sheet distortion High None (externalised) Archetype Impact (Quick Link Back) Archetype Impact of Scheme 5 Pure Trader 🔴 High (demand loss) Cluster-Dependent 🔴 High Design-IP Manufacturer 🟡 Medium Vertically Integrated 🟡 Medium Job-Worker 🟢 Low Mapping Schemes to Balance-Sheet Distortion Scheme Type Primary Distortion Monthly gold schemes Unsecured short-term borrowing Rate-freeze schemes Off-BS derivative exposure Advance booking Liquidity illusion Fintech gold plans Counterparty & settlement risk Digital gold Demand displacement risk Why This Matters to Bankers Because when renewal comes: Inventory looks low Cash balances fluctuate Advances from customers spike Margins compress mysteriously Stress appears without warning And the usual explanations follow: “Seasonality” “Volatility” “Temporary mismatch” But the root cause lies in scheme design , not operations.

The Archetypes Revisited (From Episode 4) Archetype Scheme Risk Impact Pure trader High exposure Job-worker Medium Design-IP manufacturer Moderate Vertically integrated Better control Cluster-dependent Highest systemic risk Schemes amplify existing weaknesses. They never fix them. A Banker’s Closing Lens Gold itself is not risky. Promises around gold are. When evaluating a jewellery borrower, the question is no longer: “How much gold do you stock?” It is: “How many promises have you sold against gold you don’t yet own?”

Archetype–Scheme Risk Matrix (Banker View) Archetype Monthly Gold Schemes Rate Freeze Advance Booking Digital / ETF Impact Pure Trader 🔴 High 🔴 High 🟡 Medium 🔴 Demand loss Job-Worker 🟢 Low 🟢 Low 🟢 Low 🟢 Neutral Design-IP Manufacturer 🟡 Medium 🟡 Medium 🟢 Low 🟡 Mild Vertically Integrated 🟢 Low 🟡 Medium 🟢 Low 🟡 Strategic Cluster-Dependent 🔴 High 🔴 High 🔴 High 🟡 Indirect Linking Jewellery Business Archetypes to Gold Schemes A gold scheme does not create risk by itself. It magnifies the risk already embedded in the jeweller’s operating model. How Should Bankers Know the Reality of the Money?

Carving Gold Schemes into Working Capital Gap (WCG) Assessment In jewellery lending, the problem is not lack of data. It is misclassification of money. The Core Mistake in Most WC Assessments Most CAMs treat “Advance from Customers” as: A benign current liability A natural working capital relief A sign of demand strength In gold schemes, this assumption is dangerous . Because this money is: Not linked to specific inventory Not hedged Not escrowed Not reversible without reputational damage In substance, it behaves closer to short-term unsecured borrowing than operating liability.

Adjusted WCG = Inventory + Receivables + Cash – Trade Creditors – Statutory Payables – Other Genuine CLs + Scheme Advances (Unhedged Portion) This ensures bank money is not silently substituting customer risk . Ask three blunt questions : 1️⃣ How much scheme money is outstanding today? 2️⃣ How much gold is already procured or hedged against it? 3️⃣ What is the uncovered portion?

What to Look For Strong EBITDA but weak operating cash flow Inventory doesn’t rise despite scheme inflows Borrowings rise near scheme maturity dates Summary Gold itself is not the risk. The timing of money around gold is. When customer money arrives before gold is owned or hedged, it stops being working capital and quietly becomes funding. Most stress in jewellery lending does not begin with fraud or theft. It begins with this single misclassification. Once bankers learn to see where the gold is — before giving credit relief — the balance sheet stops lying.

In jewellery lending, always follow the gold. The money will explain itself.