By Jerry Maglunog
Pawnshops are vital businesses. They help people who run out of cash to get instant money for a modest interest of 3 percent to 4 percent a month. In the Philippines, there are several big-name pawnshops that have become part of people’s lives, especially those who need instant cash.
Pawnshops offer secured loans to people, with personal-property items used as collaterals. Under normal circumstances, items pawned in can be redeemed within 90 to 120 days before they can be considered in the house or forfeited.
If an item is pawned for a loan within a certain contractual period of time, the pawner may redeem it for the amount of the loan, plus some agreed-upon amount for interest.
The amount of time and rate of interest are governed by law or by the pawnbroker’s policies. If the loan is not paid (or extended, if applicable) within the time period, the pawned item would be offered for sale by the pawnbroker.
Unlike other lenders, the pawnbroker does not report the defaulted loan on the customer’s credit report, since the pawnbroker has physical possession of the item and may recoup the loan value through outright sale of the item. The pawnbroker also sells items that have been sold outright to them by customers.
The word “pawn” is from the Latin pignus, meaning pledge, and the items pawned are called pledges or pawns, or simply the collateral. It’s been a culture in the country that pieces of jewelry are the most commonly pledged items in pawnshops.
But today, the trend of borrowing money using someone’s jewelry as collateral is fast becoming a thing of the past as far as the pawnshop industry is concerned.
A walk along Mabini Street, Gil Puyat or Edsa will prove that jewelry-accepting entities in exchange for cash have been waning significantly.
Many pawnshops that have mushroomed are not actually engaged in the pawnshop business but are lending firms that dispense with cash in exchange for sky-high interest and very short redemption period.
The entity that supervises, regulates and monitors pawnshops, the Bangko Sentral ng Pilipinas (BSP) was shocked to learn that there are such entities that exist. BSP Deputy Governor for Supervision and Examination Sector Nestor Espenilla Jr. said that, since these are not pawnshops, they have no jurisdiction over them.
The modus operandi of these entities, some carrying enticing names, such as “Gadget Mo, Pera Mo” and “Gadgets for Cash,” is simple: they set up shop near gambling dens or girlie bars so that people who become short of cash have a place to run to.
Majority of these entities are open until 2 a.m. to 3 a.m., which is really uncommon among stereotype pawnshops.
Items accepted are iPads, iPhone 5 , DLSR cameras, Go Pro cameras and MacBook Air laptops. These are specifically written on the entities signboard. What is more enticing is the very high appraised value of the items, usually thrice those offered in normal pawnshops.
Anyone who lends any of the items mentioned above should be ready to pay 20-percent interest and the most shocking clause in the agreement is that the item must be redeemed within two weeks or less or it would be forfeited outright.
If the owner doesn’t want the item to be foreclosed, he or she needs to pay the 20-percent interest every two weeks.
“These are not pawnshops based on the interest they charge,” Espenilla said. These entities have no BSP accreditation. The deputy governor said since these are not under them, the central bank has no power to prevoke their businesses’ license.
“Lending investors are under Securities and Exchange Commission, not BSP so they should beware of these pawnshops,” the deputy governor said.
What are under BSP supervision and regulation are banks, money changers, remittance centers and banks.
A look at the BSP data showed pawnshops in the Philippines numbered 17,408 as of end-2013. Pawnshops now outnumber all other financial institutions regulated by the BSP, including universal and commercial banks, rural banks and savings and loan associations.
There are total of 27,211 BSP-regulated financial institutions and pawn shops make up 63 percent of that total. The number of pawn shops in the first quarter grew 4.3 percent, while the financial industry on the whole grew by 3 percent.
Pawnshops outnumber banks nearly two to one.
Despite some issues with noncompliant pawnshops, the BSP considers pawnshops a vital part of the country’s financial sector.
Pawnshops in the Philippines have long been helping people meet needs for short-term cash.
Policy requires customers to show proper identification, as well as includes pawnshops in its “Truth in Lending” rules.