In a 2012 report, Bangko Sentral ng Pilipinas (BSP) revealed that 72% of Filipinos have availed of pawnshop services in the last 12 months prior the study. More than just to pawn property, people rely on pawnshops to receive remittances and to pay bills. BSP indicated that the result of the survey showed the Filipinos’ extensive use of pawnshops, and their increasingly important role as financial service providers in the Philippines. Several factors contribute to this trend, including the following:
Pawnshops are highly accessible
Pawnshops can be found even in remote areas not reached by traditional banks. And it is not surprising to find a pawnshop in key cities and towns.
The pawnshop industry boasts a network of approximately 17,000 main offices and branches. About 10,000 of these pawnshops engage solely in the business of pawning, while the rest offer auxiliary services including bills payment facilitation, remittance facilitation, and money changing.
The Philippines has about 9,000 bank offices, almost half of the number of pawnshops all over the country. There are more pawnshops because they are much easier to put up — they require less staff, less space, and less capital. BSP requires each pawnshop branch to put up little as Php 100,000 in capital. With much less capital at risk, pawnshops can readily set up a branch even in far-flung areas. Hence, not only do they outnumber banks, they have an even wider reach as well.
Pawnshops are inclusive
Owing to their wider reach, pawnshops have been identified by BSP as key vehicles for “financial inclusion.” The term is used to refer to the act of making a range of financial services accessible even to those in far-flung areas. These financial services include micro insurance, micro loans, money changing, remittance facilitation, and payment facilitation.
BSP’s study revealed that only two out of ten Filipinos have bank accounts. They see the information as indicative of the fact that banking services continue to be concentrated in urban areas and have yet to reach many Filipinos in rural communities.
There is currently a push for financial inclusion for Filipinos, and pawnshops are being eyed as an important instrument for achieving this goal. More than just offering a wide range of auxiliary services, pawnshops are also recognized for their potential to provide mobile banking services for low-income Filipinos. BSP considers pawnshops as a potential vehicle for providing micro credit and selling micro insurance services for a greater number of Filipinos. BSP sees pawnshops as an important driver of the economy.
Pawnshops offer reasonable rates and terms
Pawnshops provide financial services commonly known as microlending, which is a key source of credit in several developing countries, particularly in Asia. The banking system has left a void that pawnshops have managed to fill. Pawnshops provide credit to low income and poor households that have no access to lending services. Pawnshops also further benefit the people by increasing the competition in the credit markets, as they offer alternative sources of credit for those who are frozen out of bank loans. They effectively provide a much-needed financial safety net for low-income households.
Pawnshops are able to offer these financial services to low income and poor households due to a number of factors. First, pawnshops are subjected to less stringent regulations compared to financial institutions. Second, the loans provided by pawnshops are backed by hard assets. This arrangement lowers the risks or transaction costs for the lender, eliminating the need to investigate the borrower’s creditworthiness.
Pawnshops’ loan services have also become more accessible. In the past, pawnshops would accept only high-value and less bulky items like jewelry. But with the increasingly stiffer competition, they have been compelled to broaden the types of items that qualify as collateral. The range of accepted items to pawn continues to widen, extending to mobile phones, computers, and other electronic devices.
Pawnshops offer a wide range of transactions
For many Filipinos, running to a neighborhood pawnshop has been the quickest and most common way to address emergencies or urgent need for cash. As opposed to banks, pawnshops do not require customers to submit as many documentary requirements before releasing the much-needed cash.
More than just playing a vital role in meeting many Filipinos’ short-term financial needs, pawnshops have also become a reliable go-to for other financial transactions such as bills payment, remittances, money transfer, and money changing.
Because of its far-reaching and efficient operations, the pawnshop business has grown to be a highly profitable sector. According to a study by the Philippine Institute for Development, the efficient management of a pawnshop allows it to generate net profits that amount to as much as 25% of its gross operating income.
There are trusted brands in the industry
Despite the essential role pawnshops play as a financial service provider, they still have a reputation of preying on low- and middle-income Filipinos. There is a persistent perception that pawnshops tend to engage in profiteering and take advantage of people in dire need of cash and that many are fly-by-night operators that would disappear with your valuables. While BSP admits that they receive complaints involving pawnshops every now and then, they emphasize that the proportion of questionable pawnshops to the entire number of industry operators is minuscule, or about 5% of the industry’s network.
BSP recognizes the stigma attached to pawnshops, and want to help the industry improve its image. They are intensifying their coordinated work with local government units (LGUs) in monitoring pawnshops. Under a memorandum of agreement (MOA), BSP and the Department of the Interior and Local Government (DILG) agree to engage in information sharing to better regulate pawnshops. With the assistance of LGUs, the central bank conducts random visits to pawnshops across the country. During the site visits, they check if a pawnshop complies with regulations and if it is duly registered. The continued improvement of regulations with the goal of preventing fraudulent or erring pawnshops is seen to enhance the image of the industry.
Most of the pawnshops that have been subjected to complaints are found to be unregistered businesses. BSP advises people to first check their official website for the list of registered pawnshops before pawning their valuables. Going for trusted brands like Palawan Pawnshop is still the way to go.
Considering how accessible and convenient pawnshops are, they will remain to be a key financial service provider for many Filipinos, and for good reasons.