Gold-backed lending

FE Team | Published: April 20, 2026 21:28:02

Gold-backed lending

The Bangladesh Bank's Banking Regulation and Policy Department (BRPD), through its Circular No. 15 dated November 27, 2024, issued the latest Master Circular on Loan Classification and Provisioning. This circular provides comprehensive guidelines on determining provisioning requirements, including a clearly defined framework for calculating the value of eligible collateral prior to provisioning.
According to the circular, cash and cash-equivalent instruments-such as fixed deposits (FDR), government securities (treasury bills, bonds, and savings instruments), and various term deposits-are considered 100 per cent eligible collateral. Notably, gold and gold ornaments have also been recognised as eligible collateral at 100 per cent of their market value. In contrast, land and building-the most commonly used collateral in Bangladesh-are typically considered at around 50 percent of their value for eligibility purposes.
This creates a striking policy-practice disconnect. While gold is recognised as a high-quality eligible collateral within the regulatory framework, there is virtually no formal practice of gold-backed lending within Bangladesh's banking system. This absence extends across banks, non-bank financial institutions (NBFIs).
In neighbouring countries such as India, however, gold-backed lending is a well-established and widely accessible financial product. Banks, non-bank financial companies (NBFCs), and specialised gold loan institutions actively provide loans against gold, enabling individuals and small entrepreneurs to access funds quickly and at relatively lower interest rates.
In Bangladesh, several practical challenges have hindered the adoption of such a system. First, gold prices are subject to frequent fluctuations in the international market, posing valuation risks for lenders. Second, the country lacks a standardised and widely accepted infrastructure for verifying gold purity. Third, ensuring the secure storage and custody of pledged gold presents additional operational and security challenges. Although banks already provide locker services for customers to store valuables, managing gold as loan collateral involves a higher level of risk, compliance, and accountability.
As a result, many individuals turn to informal channels-such as jewellery shops or traditional moneylenders-where gold-backed loans are commonly offered. However, these loans often carry exorbitantly high interest rates, sometimes reaching 30 to 40 percent. Such rates are neither sustainable nor conducive to productive economic activity, leaving borrowers financially strained and often unable to achieve their intended business or personal objectives.
This raises an important question: if gold is formally recognised as eligible collateral in regulatory policy and why has a structured gold-backed lending system not yet been developed?
Md.Zakaria
FAVP, NCC Bank PLC.
zak.dufbs15@gmail.com