Missing the EMI opportunity

One way of tempting your customers to invest in precious jewellery is to make the cost manageable for them. Equated monthly installments, or EMIs, are the most familiar way of enabling people to buy high-value consumer products. But not in the jewellery sector! It is practically unheard of for a jewellery store to offer EMI payment plans.

The Reserve Bank of India (RBI) certainly disapproves of the practice in the case of gold jewellery. It bars banks and NBFCs from offering loans for gold jewellery. To make matters worse, the policy guidelines do not allow the bank to even convert jewellery purchase made through credit cards into EMIs which is otherwise a common practice for other purchases.  Any loan taken for purchasing jewellery is considered as personal loan on which you pay a higher rate of interest. No bank is allowed to offer a loan for purchase of precious jewellery; the category has been delisted as per the RBI guidelines.

While banks are reluctant to finance consumer purchases of jewellery, non-banking financial companies (NBFCs) have stepped cautiously into the breach. For the past few years, NBFCs have been hand-holding jewellery retailers through the process. Their efforts have seen varying degrees of success.

Why are banks not open to exploring EMIs in this sector, when doing so would help the jewellery retail industry to expand its reach among consumers, and yield better profits? What has been the experience of jewellers who have offered or do offer EMIs to their customers? What are the ways around this logjam?

Making a start in diamond

Despite the restraints on the use of EMI plans by jewellers, progressive retailers have begun to offer EMI purchases on studded jewellery.

Four years ago, a leading jeweller of Indore, MP, partnered with an NBFC to bring EMIs to its customers. Punjabi Saraf, under the leadership of Sumeet Anand, has run its EMI payment plans successfully ever since.

Our EMIs are “valid only on diamond jewellery,” says Anand. “We put up the buyer’s case with the NBFC, upon whose approval the customer starts the scheme.” The only condition applied to consumers who avail themselves of this scheme is that they are salaried white-collar workers.

Orra, a retail chain with 40 stores across India, piloted the EMI payment plan in 2019. Dipu Mehta, CEO, Orra says, “In the month of November last year, the brand in association with a NBFC finally introduced the credit facility along with the launch of Astra collection, an affordable range of diamond jewellery starting at Rs. 1lac.” As per the brand’s claim 10 percent of the sales of the collection came in from new customers who availed of the scheme.

Divine Solitaires, a diamond solitaire brand based in Mumbai, has partnered with an NBFC on a payment scheme applicable to diamond jewellery. Consumers can avail of this scheme at 147 associated retailers in 88 cities across India, as well as online.

“Our target customer is an office-going professional who wants high product quality,” says Jignesh Mehta, founder and CEO, Divine Solitaires. “So a high-class solitaire piece, made affordable by an attractive EMI scheme, eases her decision-making. [In any case,] the consumer mindset is shifting: rather than unofficial transactions without bills, buyers prefer organized and accountable transactions with PAN declaration.”

Dipu Mehta echoes a similar opinion, “Jewellers have always offered credit to consumers in an informal manner. Historically, it is this facility that has sealed long term relationships of family jewellers’ with their customers. EMI based credit facility is only formalizing the method and enabling democratization of diamonds,” he sums up the importance and need for credit facilitation.

Schemes that are working

“Our scheme is valid for purchases with a total value below Rs1 lakh,” says Anand of Punjabi Saraf. “We charge 20–30 per cent as a down payment and convert the remaining amount into monthly EMIs.”

At Punjabi Saraf, the customer’s data is fed into the system. The system sends a link to the customer’s mobile phone. The link opens the partner NBFC’s web form that the customer must fill out. After this, the finance partner takes three days to process the documents before sanctioning the loan.

In case of Orra, the brand does not take any down payment and also covers the entire interest cost. The money is directly transferred to the brand by the NBFC and is offered as a personal loan to the consumer. The scheme of ORRA is winning consumers over with its transparency and simplicity.

The numbers show a reassuring outcome: the average jewellery loan is steadily increasing. “There is a burgeoning market for EMIs in jewellery,” says Dipu Mehta. In its first year of operation, the number of consumers availing EMI facility has grown exponentially for the brand.  “Earlier only new customers would avail of the EMI facility. In the last three months, 28 percent of customers opted for it. Although only 10 percent of those were our existing clients, they contributed to 50 percent of the sales. We could very easily up-sell to such customers.”

Interestingly, Orra sets no limit to the value of purchase and offers repayment within the first 12 months of purchase. However, the scheme is valid only for studded jewellery and not gold jewellery. Clearly, the margins don’t permit bearing additional interest cost on gold jewellery.

Mehta of Divine Solitaires also offers his customers interest-free EMI payments. The interest cost, he explains, “is absorbed by us, as we get a reasonable rate from the service provider.” To promote this scheme, he says, “We use in-store communication with standees and tents as well as digital media to attract attention. After all, it’s a marvellous proposition for any consumer to buy jewellery via EMI.”

Divine Solitaires introduced the EMI payment scheme for in-store as well as online customers. “It has been fully active for over a year, says Mehta. “We have set a purchase limit of Rs5 lakh, with the number of monthly installments varying from three to 12. The processing fee is waived for those availing a three-month loan, and goes up to 4 per cent for a12-month tenure.”

Margins and a warning note

The story of EMIs in jewellery retail began as a significant market play in 2004. “We used to offer EMI facility to the customers in association with SBI bank from 2004-2009. One of the representatives from SBI bank used to sit inside the showroom and on the customer’s request, the bank used to sanction loans to them for buying gold jewellery. At the time, the banks were allowed to sanction loans for jewellery and ornaments. However, we had to stop the service after the central government banned it,” says Kishorkumar Shah, Director, Chandukaka Saraf and Sons, Pune.

“Many customers availed the facility as gold prices were steadily increasing. The bank charged fourteen percent interest and handed over the jewellery only after the customer completed the loan repayment. The customers who had weddings at home or wanted to make big purchases availed the facility and benefited from it.” The customer made down payment of 25 percent and the bank paid the remaining 75 percent directly to the jeweller,” reminisces Shah.

Back in 2011, PNG Jewellers, the Pune-based regional chain, tied up with the public-sector Bank of Maharashtra to offer a similar but short-lived scheme for gold jewellery across the state. In PNG’s scheme, a customer would buy jewellery from the brand and the bank would treat it as a personal loan. The bank would pay the brand upfront, and the customer would pay the bank EMIs including interest.

The programme made sound business sense, says Saurabh Gadgil, owner, PNG Jewellers. “The Bank of Maharashtra has branches in every town and village of the state, and account-holders in huge numbers. We promoted the scheme at our stores, and the bank promoted it at their branches.”

The scheme, however, did not last beyond a couple of years. Jewellery is a movable asset, therefore, tracking a defaulter is extremely difficult. Unlike other assets like real estate or even cars, it may not be as easy to track jewellery and recover the money. The bank realised that when a customer defaulted, even if the jewellery was recovered, price fluctuations would mean that there was no guarantee of assured resale value. “The bank realised that this was not feasible and stopped the scheme.”

“In car and house loans, the margin is wide enough for the seller to chip in,” says Gadgil. “The margin on jewellery is so thin that retailer is unable to partner and banks think it is a risky proposition. The scenario is the same today. There is not much change,” he adds.

With jewellery seen as a risky product, compared to electronic appliances or real estate, PNG Jewellers was asked by the bank to bear the total risk of default. “With a thin margin in jewellery, we didn’t see the EMI scheme as worth advancing on,” says Gadgil.

The overall cost, he adds, is not feasible for a business with slender margins. “Including the risk factor in our pricing model, would have made our pricing strategy uncompetitive. In those circumstances, we were at a dead end.”

Ranka echoes the same opinion. “I feel that a proper EMI scheme supported by the government and financial institutions were liability of getting the recovery is with the bank is more suitable for the industry,” says Vastupal Ranka, Director, Ranka Jewellers, Pune.

“Banks can undertake risk prevention measures,” Gadgil explains. In the case of PNG Jewellers, the Bank of Maharashtra actually sought KYCs (the know-your-customer process required of Indian financial institutions) of their old deposit holders who opted for their scheme. “They have the set-up. An individual jewellery brand can’t afford this. The ultimate solution would be for the banks to develop a safe product, where they make the profit and also take the risk, without expecting the jewellers to take a hit.”

Experts opine how the risk would be significantly reduced, if retailers carefully went through the rules laid out by the lending companies. “The retailer, while finalizing the purchase of a service from us, should have a thorough understanding of the nitty-gritty before extending its service to an end-consumer. For instance, we request jewellers not to entertain customers with a CIBIL [credit history] score below 700. Even a moderate credit rating entails a risk of non-repayment by the customer in question. Some clients overlook this clause, suffer non-repayment and, out of frustration, discontinue services with us,” says Sandeep Kamble, of JewelFina, the NBFC which offers the EMI based credit facility.

ORRA follows the process diligently. By ensuring they tick all the boxes in the rule book of the NBFC, it eliminates the risk. However, the final risk is borne by the NBFC which gives the credit facility in the form of a personal loan.

The risk, in case of Divine, is also not absorbed by the brand. “The lending, the risk assessment, and the ultimate liability for risk are the NBFC’s,” says Jignesh Mehta. “It is their core business. They know best how to manage it.”

Keep it clear and simple

For Divine Solitaires, says Jignesh Mehta, the key hurdle is the mandatory customer background check. “For credit eligibility, customers have to be visited at their residence by the lending institution. The process is cumbersome and sometimes long. At times, it leads to customers changing their buying plans.”

His recommendation: “A common pool of data that can be accessed by any of the lending banks or NBFCs, so that the loans can be disbursed instantly to customers without delay.” One good reason for this, he explains, is that some customers “go through the credit rating process multiple times for different purchases” — certainly not a reasonable outcome of the existing process.

Shah feels that EMI schemes are the need of the hour as more customers will try to avail the scheme and big wedding jewellery purchases will also happen.

Gadgil makes the larger point: “If the government pays heed to this industry and a jeweller is permitted to use an EMI scheme for products at any price point, the consumer will be able to afford a piece priced at five times her nominal budget. Also, the industry will gain the trust it has always deserved.”

For the lack of a reliable mechanism, most jewellers’ are introducing saving schemes. Stressing on the idea of instant gratification and how it triggers sales,

Dipu Mehta says, “A regular saving scheme were customers pay advance installments defers the gratification. They only get to take home the jewellery after the last installment is paid off.”

Tanishq has thoughtfully introduced a EMI based saving scheme Rivaah Aashirwaad specifically linking it to the purchase of the Rivaah collection. It gives customers the flexibility to plan their purchase in terms of the quantum, duration and benefits which are transparent. The monthly payment for the scheme is as high as Rs 20,000 per month but the customer can take home the jewellery anytime after the sixth month. (To know more about the Rivaah Ashirwad promotion turn to page )

“Banks do not allow you to convert gold purchases on credit cards into EMIs, based on RBI guidelines,” says N Anantha Padmanaban, chairman, Gem and Jewellery Council (GJC). However, he too hints at a need for greater fairness, recognising that “The gems and jewellery industry plays a very vital role in our GDP, so financial institutions should have a more open mind about giving EMI facilities to the jewellery industry. At the end of the day, everybody will benefit from it, especially the end-consumer.”

Dipu Mehta agrees it is still early days for such Emi schemes in India but believes it’s an idea whose time has come and remains hopeful about EMI’s making every girl’s dream of owning a diamond come true.

As published in The Retail Jeweller India magazine