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.