Why do many go to pawnshops more than banks?
By Michelle V. Remo
6:52 pm | Saturday, December 1st, 2012
CEBUANA Lhuillier has a branch on Chino Roces Avenue. PHOTO BY EDWIN
BELLOSILLO
For many Filipinos, pawning jewelry at a neighborhood pawnshop has been
the most common and quickest way to address an urgent need for
relatively small amounts of cash.
Compared with banks, pawnshops do not impose as many documentary
requirements before releasing cash to customers. Moreover, the latter
are more accessible, as they may be found even in remote areas where
banks do not operate.
But despite the essential role these financial-service providers play,
pawnshops still suffer from a bad reputation of preying on middle- and
low-income Filipinos. The perception remains that pawnshops have a
tendency to take advantage of people in need of cash through
profiteering, and that many of them are fly-by-night operators that
steal pawned jewelry.
The Bangko Sentral ng Pilipinas, which has a division dedicated to
regulating pawnshops, agrees that the pawnshop industry continues to
suffer a stigma. It admits that it receives complaints involving
pawnshops from time to time, usually in terms of operators that suddenly
disappear without notifying customers about how they could get their
pawned assets back.
The BSP, however, says the proportion of erring pawnshops to the total
number of industry players is miniscule. Ma. Belinda Caraan,
officer-in-charge of the central bank's integrated supervision
department, says the number of pawnshop branches that have been the
subject of complaints is equivalent to less than 5 percent of the
industry's network.
The pawnshop industry has a network of nearly 17,000, which include head
offices and branches. Of the number, about 10,000 are engaged solely in
the pawning business. The rest also operate auxiliary businesses, such
as money changing, remittance facilitation, and bills payment facilitation.
MOA with LGUs
"Until now, there is still the negative view that pawnshops prey on
consumers. We want to help the industry change its image," Caraan tells
SundayBiz.
To do the task, Caraan says, the BSP is intensifying its coordination
with local government units (LGUs) as far as monitoring pawnshops is
concerned.
She says that under a recently updated memorandum of agreement (MOA)
between the central bank and the Department of the Interior on Local
Government (DILG), the two government institutions shall engage in
information sharing for the purpose of better regulation of pawnshops.
Caraan says constant enhancement of regulation, with the aim of bringing
down the number of erring or fraudulent pawnshops to almost zero, will
help improve the public image of the pawnshop industry.
In one of the central bank's latest initiatives, its representatives,
with assistance from LGUs, conducts random visits of pawnshops all over
the country. The BSP targets to cover 500 pawnshops until 2015, and an
even larger number in the succeeding years.
In the spot visits, Caraan says, BSP representatives check if a pawnshop
is duly registered and if it complies with various regulations.
Caraan says most of the pawnshops that have been the subject of
complaints are not registered businesses. She advises people planning to
pawn a property to first check the website of the BSP to see if the
pawnshop to be visited is registered.
Training
The BSP likewise holds training seminars for pawnshop operators and
their staff. She says such training is conducted at least once a month
by BSP personnel all over the country. The training covers a wide range
of topics, including ethical business behaviors, valuation of assets,
and detection of money-laundering activities, among others.
Training helps improve the manner of service delivery by pawnshops,
Caraan says.
"We like people to develop a positive view of pawnshops. We want the
public to perceive pawnshops not only as accessible, but as reliable and
trustworthy providers of financial services," Caraan says.
Service providers
Minda (not her real name), an employee at Palawan Pawnshop in
Mandaluyong City, says in a random interview with SundayBiz that
pawnshops must be perceived positively given the vital role they play in
meeting short-term financial needs of many Filipinos.
"For many Filipinos who are short of cash, pawning is the easiest way to
solve their problem. It is much easier to raise money through pawning
than securing a bank loan," she says in Filipino.
She says the pawnshop she works for receives between one and six
customers, mostly from the neighborhood, pawning jewelry in a day.
Janet, a mother in her 50s and who has been a pawnshop customer, says
pawning has been a reliable means to meet her immediate need for cash.
"For instance, if there is an urgent requirement for house repair and I
fall short of cash, all I have to do is visit the nearest pawnshop,"
Janet says. "It is not advisable to go to a bank and try meeting all its
requirements if what you need is just a small amount of money," she adds.
Expanded role
Because of their wide reach, pawnshops are identified by the BSP as
entities for "financial inclusion." The term refers to the act of making
various financial services (such as payment facilitation, remittance
facilitation, money changing, micro loans, and micro insurance)
accessible even to people in far-flung areas.
A study by the BSP released earlier this year said only two out of 10
Filipinos have bank accounts. The BSP said the information is an
indication that banking services are still mostly concentrated in urban
areas and are not reaching most Filipinos in rural communities.
Caraan says, however, that pawnshops are capable of filling the gap.
Unlike a bank, a pawnshop is much easier to put up. This is the reason
they are much bigger in number compared with banks. While there are
nearly 17,000 pawnshop head offices and branches in the country, there
are only about 9,000 bank head offices and branches.
The wider reach of pawnshops is largely credited to the ease in putting
them up. Compared with a bank, a pawnshop requires less space, less
staff, and needs much less capital (each pawnshop branch is required by
the BSP to have a capitalization of just P100,000), according to Caraan.
"There is a push for financial inclusion, and pawnshops are seen to help
achieve the goal of having more Filipinos access financial services,"
Caraan says.
Some of the auxiliary services that many pawnshops now offer include
remittances facilitation, money changing, and bills payment
facilitation. Moreover, a few also now serve as "cash in-cash out
centers" and offer mobile banking services.
Under the mobile banking concept, an individual may open an electronic
account with a "cash in-cash out center" (which may be a pawnshop) for a
measly amount, usually P100. To open an account, the individual fills
out a form with the cash in-cash out center and registers his cellular
phone number.
Once an account has been opened, the individual may place a deposit by
buying a "mobile phone load" from the cash in-cash out center. He will
then encode details of the "load" to his electronic account using his
cellular phone.
Moreover, an individual with a mobile banking account may also receive
money. If someone (who must also have a mobile banking account) sends
money to the recipient's account, the latter shall be notified through
text. The recipient may then go to a cash in-cash out center to get his
cash.
The BSP said that as the practice of mobile banking further develops,
the number of Filipinos that do not access financial services and that
do not have bank accounts is expected to diminish over the next few years.
Besides providing mobile banking services for low-income Filipinos,
Caraan says, pawnshops in the future may also provide other financial
services. With proper regulatory framework, the BSP believes there is
scope for pawnshops to also sell micro insurance and provide micro
credit, she says.
"They serve the important role of making financial services—and even
more kinds of such services in the future—reach the poor and those who
reside in remote areas. Indeed, pawnshops are important to the economy,"
Caraan says.
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