Pawnshops lifeline in hard times

THE massive job cuts being implemented by manufacturers and exporters amid the global economic crisis may lead to an increase in the number of unredeemed pawned items.

“Every financial crisis that results in mass layoffs will have a ripple effect. We saw that happened in 1986, again in 1997, and we expect to see the same now. A crisis affects all industries—especially financial institutions or intermediaries like pawnshops,” says Marc Ablaza, vice president of Chamber of Pawnbrokers of the Philippines Inc.

The chamber represents about half of more than 14,000 pawnshops in the country, including the big Lhuillier and Tambunting chains.

Ablaza says workers, who may have acquired a few assets during the good years, may resort to pawning. But without regular employment they will be too hard up to redeem the items.

“Then pawnshops will have a problem because we do not expect a market for foreclosed assets. Who will buy them? But this is assuming our clients still have items to pawn,” he says.

Ablaza estimates that 95 percent of pawnshops serve Filipinos who would otherwise have no access to credit. Their clients can’t open bank accounts because the minimum balance required is too steep, or because they have no permanent address. So they don’t normally qualify for credit cards or membership in savings and loan associations that have strict savings requirements.

Jewelry, cell phones

Pawnshops often provide loans from P1,000 to P2,500, with jewelry, cell phones and appliances commonly used as collateral. Interest rates average 4 percent to 5 percent a month, with a minimum term of 30 days, renewable monthly.

If the borrower does not redeem the pawned asset when the loan falls due, all he has to do is pay the interest for the next month to keep the loan current. Loans for which interest has not been paid 90 days after maturity are deemed expired and pawnshops are authorized to sell the items to recover their cash.

Remittance centers

Looser credit card requirements in the last 10 years have led to easier access to cash, resulting in a general decline in the traditional pawnshop business. This has caused many pawnshops to also act as remittance centers, offering its storefronts as pickup centers for cash sent by overseas workers to their families.

“We noticed that more and more pawnshops have had to double as remittance centers. At first, it was considered an add-on service because pawnshops are quite accessible. But now, more than half of the business comes from remittance services instead of pawns,” says Ablaza.

He says members of the chamber observed that 2008 remittances were softer, or did not grow as fast as they did in 2007. In addition, pawn redemption that normally occurs in December when people supposedly have extra cash did not happen. Rather, more clients came in to pay loan interest than redeem their jewelry.

“We saw a combination of two things that offer a bad prognosis for the business: remittances came in but the volumes were not as much as we had expected; and clients probably did not have as much cash as they wanted because they did not redeem their pawns. It’s going to be a tough year,” Ablaza says.

For this reason, the industry expects generally flat loan volumes in 2009.

“Unlike in the United States where pawnshops are experiencing a lot of activity because of a recession, the Philippines is not feeling the [full brunt of the] recession yet. This could be why we are not seeing an increase in pawns. Or it could also be because people no longer have anything to pawn,” Ablaza says.

High-end market

Still, there is a segment of the pawnshop industry that will likely experience a boom: the high-end market.

Ablaza acknowledges that niche players that focus on the affluent can look forward to more business in 2009, but remains mindful that the greater majority of pawnshop clients will be hard up.

License plate

A Bangko Sentral ng Pilipinas mapping operation has found that 26 percent of pawnshops are not registered, most of them located outside Metro Manila.

This presents a risk to consumers as unregistered pawnshops may close at the drop of a hat and clients will have no one to run after for their pawned items.

It is important, thus, to look for the Bangko Sentral-issued pawnshop license plate to ensure that the pawnshop is legitimate and authorized to do business.

Most of those found unregistered have actually applied for licenses, according to Ablaza.–Carla Paras-Sison, Philippine Daily Inquirer