Sri Lanka’s worsening household financial distress is now reflected in an alarming surge in gold-backed lending, revealing the depth of economic hardship gripping the country.
Official data show that pawning loans have skyrocketed to an estimated Rs. 356.5 billion in the first half of 2025, marking one of the steepest increases in recent years and highlighting the struggle of families forced to pawn their last remaining assets to make ends meet.
According to the Central Bank’s Financial Stability Review 2025, lending by licensed finance companies reached Rs. 1.84 trillion by mid-2025, with nearly 19.4% of these loans backed by gold.
This represents one of the sharpest expansions in gold-collateralised lending since the economic collapse of 2022–23 an expansion many analysts link directly to a lack of policy urgency, weak governance practices, and the government’s slow implementation of essential economic reforms.
A senior Finance Ministry official, speaking anonymously, said the surge in gold pawning reflects “acute pressure on middle- and lower-income households struggling with rising prices and stagnant incomes.”
With inflation persisting and economic reforms moving at a sluggish pace, families increasingly rely on pawning jewelry to buy food, pay school fees, or cover medical expenses.
The depth of the crisis is further underscored by the sharp rise in pawn-advance arrears. Ministry data show an increase from Rs. 210 billion in 2019 to Rs. 571 billion by March 2024 a clear sign that more borrowers are unable to redeem their jewelry. For many, these loans were intended as short-term lifelines but have now become long-term traps.
Industry leaders warn that gold-backed loans are expanding faster than other credit categories, reflecting severe liquidity stress among households.
A CEO of a major finance company noted that gold loans now form the backbone of cash-flow survival for many families, saying, “This is not healthy credit growth it is distress lending.”
Economists also caution that the trend poses systemic risks. Fitch Ratings previously warned that excessive reliance on gold-collateralised lending exposes financial institutions to collateral price swings and simultaneous borrower defaults particularly dangerous in a fragile economic environment.
But beyond financial risks lies a deeply human tragedy. Losing gold jewelry in Sri Lanka is not merely a financial loss; it is the loss of wedding heirlooms, inherited pieces, and symbolic family security.
A researcher at a leading think-tank said, “When people begin losing their gold, it means they’ve lost their final safety net.”
Experts argue that immediate safeguards are urgently needed. Proposed measures include temporary interest-rate caps for vulnerable borrowers, grace periods for jewelry redemption, and restructuring schemes to convert pawn advances into longer-term, affordable repayments.
Yet the ultimate solution remains elusive. Without meaningful progress on economic reforms, improved governance, and decisive policy execution, analysts warn that the pawning surge will intensify.
Until then, Sri Lanka’s once-cherished gold reserves long symbols of stability have turned into collateral for survival, revealing a nation still struggling to rebuild amid uncertainty and policy drift.
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