Primary Income — Interest on Gold Loans
The core and dominant income source for any pawn broker is interest charged on gold loans — typically 12–24% per annum in India. Every rupee deployed as a gold loan generates interest income from the first day.
Example: ₹50L portfolio at 18%, 85% utilised:
= 50,00,000 × 0.015 × 0.85 = ₹63,750/month
Interest is the engine of the business. Every additional lakh deployed at 18% generates ₹1,500/month. A pawn broker with ₹1 crore portfolio at 18% earns ₹1,27,500/month in gross interest income before expenses.
Secondary Income Sources
| Income Source | Typical Amount | How It's Earned |
|---|---|---|
| Processing fee | ₹50–₹200 per new loan | Charged once at loan disbursement for documentation and processing |
| Valuation charge | ₹20–₹50 per assessment | Charged for weighing and testing gold, even if no loan is taken |
| SMS reminder fee | ₹10–₹20 per month | Charged to customers for automated payment reminder messages |
| Repledge spread | 6–8% of repledged amount p.a. | Difference between bank rate paid (10–11%) and customer rate earned (18%) |
| Auction surplus | Varies | When gold appreciates — auction proceeds exceed outstanding loan |
The Repledge Spread — The Multiplier Strategy
The most powerful additional income strategy for a pawn broker is the repledge spread. A pawn broker with ₹50 lakhs of customer gold in their vault can re-pledge that gold at a bank at 10–11% interest rate, receive ₹35–40 lakhs in fresh funds, and deploy those funds as gold loans to new customers at 18%.
₹30L repledged at bank (11%), deployed to customers at 18%:
= 30,00,000 × (7%) ÷ 12 = ₹17,500/month on zero additional equity
What Pawn Brokers Spend Money On
- Shop rent — typically ₹15,000–₹40,000/month for a good commercial location
- Staff salaries — ₹10,000–₹15,000 per staff member; owner draws ₹20,000–₹40,000
- Gold insurance — 0.5–1% of custody value per annum
- Interest on repledge bank loan — bank rate (10–12%) on repledged amount
- Software subscription — ₹1,000–₹3,000/month for gold loan software
- Marketing and signage — ₹2,000–₹5,000/month typically
- NPA losses — auction shortfalls when gold price has fallen; typically 2–5% of portfolio annually
Net Profit — The Real Numbers
After accounting for all costs, here is what a well-run pawn shop actually earns:
| Portfolio Size | Monthly Interest | Monthly Costs | Net Monthly Profit |
|---|---|---|---|
| ₹25 Lakhs | ₹31,875 | ₹22,000 | ₹9,875 |
| ₹50 Lakhs | ₹63,750 | ₹32,000 | ₹31,750 |
| ₹75 Lakhs | ₹97,875 | ₹48,000 | ₹49,875 |
| ₹1.5 Crore | ₹1,91,250 | ₹85,000 | ₹1,06,250 |
* Based on 18% p.a., 85% utilisation, 3% NPA. Owner's draw included in costs.
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