The Economist Focus Articles on Microfinance

Financial services are at last spreading from the rich to the developing world and even making money, writes Tom Easton
IN RICH countries, financial services on the whole work remarkably well, despite the exotic salaries, the crackpot deals and the occasional bust. The vast majority of people have access to interest-bearing savings accounts, mortgages at reasonable rates, abundant consumer credit, insurance at premiums that reflect the risk of losses, cheap ways of transferring money, and innumerable sources of capital for funding a business.

By contrast, financial services for poor people in developing countries a business known as a microfinance have mostly been awful or absent. With no safe place to store whatever money they have, the poor bury it, or buy livestock that may die, or invest in jewellery that may be stolen and can be hard to sell. Basic life and property insurance is rarely available. Home loans are costly, if indeed they can be found at all. For many people, the only source of credit is a pawnshop or a moneylender who may charge staggeringly high interest and beat up clients who fail to pay on time. In the Philippines, lenders who zip from town to town on motorcycles expect six pesos back for every five they lend. That translates into an annual interest rate of over 1,000% on a loan for a month.
For workers from poor countries who venture abroad to earn a better living, sending money home to relatives can be hugely expensive. Such remittances have become an important source of income in many developing countries, dwarfing other inflows of capital from overseas such as foreign direct investment and multilateral aid. But if the money is being sent, say, from America to Venezuela, charges can amount to as much as 34% of the sum involved, according to Dilip Ratha of the World Bank.
Why are the poor so badly served? The easy answer, that people who have little money do not make suitable clients for sophisticated financial services, is at most a half-truth. A better explanation, this survey will argue, is that the poor have been hurt by massive market and regulatory failure. Fortunately that failure can be, and increasingly is being, remedied.
In most developing countries, the barriers to providing financial services for the masses are all too clear. Inflation tends to be high and volatile; government is often incompetent; and the necessary legal framework for financial services is often missing. Property laws can make it impossible for poor borrowers to use assets such as their home as collateral for loans.
In the past, many countries have outlawed usury, and today many Islamic countries prohibit the charging of interest. Governments in developing countries often impose caps on the interest rates charged on loans for the poor. Despite their popular appeal, such caps undermine the profitability of lending and thus reduce the supply of loans.
Incomplete and erratic regulation of financial institutions has also undermined the confidence of the poor in the financial services that are available. When they can find an institution that will accept their tiny deposits, it often lacks the sort of government deposit insurance that is routine in rich countries, so when a bank goes under, savers suffer. For example, Indonesia’s PT Bank Dagang Bali, once known for its work with poor clients, was closed by regulators last year after it was discovered to be insolvent and riddled with fraud. Many savers did not get their money back.
Corruption is also commonplace in many developing countries. A recent study by the World Bank found that in two poor states in India where the financial system is largely controlled by the government, borrowers paid bribes to officials amounting to between 8% and 42% of the value of their loans. Corruption raises the cost of every financial transaction, allows undesirable transactions to take place and undermines consumer confidence in the financial system. This, and the related curse of cronyism, explains why access to financial services in countries where the state has control over the financial sector is poorer than where it does not.
Inadequate basic public services add to the burden on financial firms. SKS, a fast-growing microfinance institution in India, has had to build back-office systems that can work on two hours of power a day; it closely monitors voltage when its computers are running and keeps a diesel generator on hand. Many others simply give up on the idea of modern technology and continue to use paper instead. This makes them vulnerable. The tsunami in December 2004 wiped out financial records at many small Indonesian banks.
But not all the blame goes to poor-country governments. Financial-services firms too have failed to do enough to deal with the lack of the sort of data (for example, about a client’s financial history) that are taken for granted in rich-country financial systems, and to find ways of reaping economies of scale. Many have simply dismissed the possibility that serving the poor might be a viable business.
The start of something big
In recent years, at least in some parts of the world, this bleak picture has begun to change, first in credit, then in savings and more recently in remittances. Even insurance not only the basic life sort but also more sophisticated forms for things like cattle and weather risk is gradually being introduced.
These changes have recently received a lot of attention in policymaking circles. Grand claims have been made that credit can end poverty. A World Bank report by Thorsten Beck, Asli Demirguc-Kunt and Soledad Martinez published last month shows a strong correlation between lack of financial access and low incomes (see chart 1). Earlier research by the first two authors and Ross Levine concluded that a sound financial system boosts economic growth and particularly benefits people at the bottom end of the income league. A long-term study in Thailand by Robert Townsend of the University of Chicago and Joe Kaboski of Ohio State University showed that families with access to credit invested more, consumed more and saved less than those without such access.
What makes microfinance such an appealing idea is that it offers “hope to many poor people of improving their own situations through their own efforts, says Stanley Fischer, former chief economist of the World Bank and now governor of the Bank of Israel. That marks it out from other anti-poverty policies, such as international aid and debt forgiveness, which are essentially top-down rather than bottom-up and have a decidedly mixed record.
Studies by Stuart Rutherford, who runs an experimental bank that provides loans and takes deposits in the slums of Bangladesh, show that the poor attach great value to having a safe place to keep money and some means of providing for life’s risks, either through savings or, better still, through insurance. When financial services are available to them, the poor, just like the rich, snap them up.
In one sense, microfinance has been around for a long time. What is now generating so much hope and excitement is less the discovery of some entirely new way to deliver financial services to the poor than the effect of the rapid innovation that has taken place in the past three decades.
From pawnshop to Citigroup
The oldest financial institution in the Americas is a pawnshop on Mexico City central square. Set up in 1775 under an edict by the Spanish crown to assist people in financial trouble, it is called Monte de Piedad, variously translated as the mountain of mercy or the mountain of pity. Pity or mercy come in the form of cash in return for valuables. Unclaimed items end up for sale in a series of glittering rooms near the main banking hall.
By transforming trinkets into capital, pawnshops perform an important (if under-appreciated) service, but they have three limitations. They advance cash only to people with assets. Their loans are based on the value of collateral, not of a business venture. And the valuables held as collateral cannot be used to fund businesses, as banks’ cash deposits can.
There have been two notable attempts to find alternatives. One has been the creation by developing-country governments of state banks, particularly to finance the rural poor. These have mostly been a disaster. The other, much more successful one involved a number of organisations extending uncollateralised loans to very poor borrowers. In 1971, Opportunity International, a not-for-profit organisation with Christian roots, began lending in Colombia. ACCION International, also not-for-profit, made the first of what it called micro loans in 1973. Grameen Bank started in 1976 and soon became extraordinarily famous for offering microcredit to women in small groups.
To qualify, Grameen customers had to be extremely poor, probably earning less than a dollar a day. To overcome the lack of collateral or data about creditworthiness, group members were required to monitor each other at weekly meetings, applying varying degrees of pressure to ensure repayment. As loans were repaid, people were allowed to borrow more. The group replaced the security that pawnshops gained from collateral. The model is not perfect, but it does have real virtues and has since spread around the world.
Why did these organisations start with providing credit? They assumed that poor people were unable to save, and that their sole need was for capital. But that was not the whole story. When BRI, a failing state-controlled rural lender in Indonesia, was transformed into a bank for the poor in 1984, it offered not only the usual loan products but also a government-guaranteed savings account with no minimum deposit. This has been an extraordinary success: BRI now has 30m savings accounts.
Nobody knows how many institutions are providing microfinance in some form, but the number is certainly huge (see article). They are growing fast and serving a vast number of people in absolute terms, although still only a small proportion of the billions who earn only a few cents a day. Local banking giants that used to ignore the poor, such as Ecuador Bank Pichincha and India ICICI, are now entering the market. Even more strikingly, some of the world biggest and wealthiest banks, including Citigroup, Deutsche Bank, Commerzbank, HSBC, ING and ABN Amro, are dipping their toes into the water.
The downsides
Not everyone has been pleased with the prospect of better financial services for the poor. Islamic fundamentalists have bombed branches of Grameen in Bangladesh and attacked loan officers of other institutions in India. Maoists have looted microfinance offices in Nepal. The head of a microfinance effort in Afghanistan was murdered, possibly by drug traders.
To drug lords in Afghanistan, the availability of credit is unwelcome because it gives a choice to farmers who were previously forced to grow poppies for want of other ways to finance their crops. For the elites in closed markets running inefficient monopolies, credit raises the prospect of future challenges from entrepreneurs. For radical Muslims, it means that women (who in many countries make up the bulk of microfinance borrowers) are able to run viable businesses and become independent. And for everyone in poor countries, credit can mean social upheaval as merit and enterprise replace inheritance, family ties and position.
Nor does microlending always have a happy outcome. The clients of K-Rep, an excellent Kenyan microfinance bank in a small town on the fringes of Nairobi, are a pretty resourceful lot, but when the government stopped repairing roads, picking up rubbish and spraying for malaria, some were at their wits end. Drainage in the marketplace was plugged by uncollected garbage and customers stopped coming. Maria Njambi, a single mother with a ten-year-old child, used to have a viable business selling fruit and vegetables she bought with credit from K-Rep, but she had to watch her inventory rot and has stopped repaying her loan. She is not alone in her misfortune. A report in 2002 by CARD, a microfinance organisation in the Philippines, offers the following explanation for borrower attrition: It is a tragic fact that over time, husbands will fall sick, sari-sari [variety] stores will be robbed, harvests will be poor and children will die.
Yet microfinance institutions typically claim extraordinarily low loan losses of 1-3%, a bit better than the rate for big banks in rich countries and much better than for the big credit-card companies. Given the difficulties facing businesses in poor areas, some critics question the accuracy of these figures. Many of the banks lending to the poor are not-for-profit organisations whose accounts are rarely scrutinised by outsiders. Much of their capital has been provided by governments or philanthropists, and often does not have to be repaid, so perhaps microfinance institutions are being quietly lenient with their customers. Indeed, large-scale defaults in microfinance may go unreported. The Townsend-Kaboski research project in Thailand informally tracked hundreds of microfinance institutions and found that in the five years before the Asian financial crises, 10% failed and a quarter stopped lending.
So there is room for scepticism, but also plenty of reason for hope. The biggest of these is just how much progress the industry has made in the past 30 years.

Visit The Economist website, or buy an issue at the newstand to access more info, photos and links to additional exclusive content.

Read More......

Top 10 Benefits to Working in a PawnShop

Pawnbroking offers many career opportunities that are often overlooked. The biggest reason is because most people looking for a career or a career change either have no idea or a misunderstanding of what actually takes place in a pawn shop on a daily basis.

Being a pawnbroker means to be a lender, a banker of sorts. Pawnbroking is the oldest form of consumer credit. Pawnbrokers extend cash loans secured by merchandise which is pledged. The borrower has a fixed amount of time to come back and repay the loan and redeem their pledge, or their merchandise is forfeited and sold.

Here 's a short list of some of the hidden opportunities in the pawnbroking industry, and some of the exciting benefits that one would realize in seeking a career as a pawnbroker. It will clear up many misconceptions that you may currently have.


01. Every day is different.

Unlike working in a retail store, every day is very different when you are a pawnbroker. There are three main reasons why customers come into a pawnshop. The first would be to borrow money, to secure a pawn loan. The second would be to sell personal property that they no longer wish to own. And the third would be to purchase items that the pawnbroker has for sale.
As you can see, all three of these reasons involve merchandise of some sort. But unlike a retail store, the variety of merchandise that goes through pawn shop is beyond what the mind can conceive. It could be anything from the latest in technologies to the rarest of antiques. Working at a pawn shop you truly do see at all.

02. The education is fun and fulfilling.

Working in a pawnshop is a continuous learning experience. And with this experience comes the ability to become an on the spot appraiser of sorts. Because there are so many different aspects of the industry, there is always more to learn in your career.

One of the most fun things about this sort of education is that you're not learning it in theory or just from books. The learning experience is real life, real people, and real examples to be studied. Tens of thousands of people working in this industry find this continuous learning experience very life fulfilling.

03. You gain considerable knowledge of people.

Pawnbroking is a career that will hone your people skills to a razor-sharp edge. Because of the nature of the business, you are continually dealing with people from virtually all walks of life. You could deal with anyone from a middle-class mom to a movie star. You really get to deal with everyone and it 's on a one on one basis.

Because of this wide variety of customers, you quickly gain the ability to be able to read people. And usually their body language will tell you everything you need to know to do business with them. You also quickly learned that no matter what the financial or social status is of a person, we are all still the same. A kaleidoscope of the human race.

04. You learn much more about yourself.

A day in the pawn shop is a study in human nature. Most pawn shop employees really appreciate what they learn about their customers, but they are truly amazed at what they actually learn about themselves. Pawnbrokers experienced such an extensive variety of human emotions while on the job. Few careers can match this experience.

Being a pawnbroker requires a considerable amount of compassion and understanding. Much like a police officer, not knowing what experience is coming next, a pawnshop employee needs to study their own emotions and use them to their best advantage. You learn to be a caring and kind individual yet not get caught up in the moment.

05. You increase the ability to budget yourself.

Because your job is about lending money, you get to deal with people in all different types of financial situations. Your first customer of the day may need $20 to top off their fuel tank so they can go to work for the rest of the week. Your second customer may need $2000 to finish paying for their brother 's funeral. It really is that diverse.

This is a career that will teach you how to budget yourself no matter what your income. You quickly learn the importance of the ability to live within your means. Pawnbrokers are well-known for paying their bills on time and not falling too deeply into debt. This comes from their on-the-job knowledge dealing with people experiencing financial difficulties.

06. You expand your understanding of many consumer products.

Being a pawnbroker requires you to have extensive knowledge of many consumer products. Being an on the spot appraiser, you quickly learn to evaluate merchandise for fair market value, function ability, and resale ability. Lucky for pawnbrokers in these times, the Internet offers an unparalleled resource for this.

But this does not mean that you rely too heavily on the Internet for this skill. A pawnbroker develops a sixth sense of being able to value an item currently and in the future. Tomorrow 's price of gold is every bit as important as the popularity of a video game six months from now. All of this without a crystal ball.

07. You have great opportunity to specialize in a chosen field.

Since you are continually surrounded with such a wide variety of merchandise, being a pawnshop employee gives you an unparalleled opportunity to specialize in a chosen field. Most pawn shop employees have to look no further than their hobbies and their interests to be able to choose an area to specialize in.

Many have gone on to become sought after experts in their field. Whether you are interested jewelry, musical instruments, art, rare antiques, vintage watches, consumer electronics, or any of an infinite number of other areas, pawnbroking gives you an exceptional opportunity to become a specialist in any subject that might interest you.

08. The opportunity for superior compensation is much greater than retail.

Pawn shop employees are typically paid a greater scale than your normal retail employee. This is because their career involves much more than just sales and customer service. And those pawnshop employees who truly learn and realize the value that they offer their customers and their employers are the ones who are compensated the best.

Pawnbroking also offers an excellent opportunity for career advancement. An entry-level position may be no more than a stock room clerk, but with experience can evolve into a merchandise specialist or a store manager. The desire of the employee to succeed, and the ability of the employee to learn are the only true obstacles.

09. You can be very successful without college degrees.

While many pawnshop employees may actually hold college degrees, their education is most likely not something that was required for their career. This should come as no surprise since most college graduates eventually end up in a career that is unrelated to what their college studies were.

Pawnbroking offers an excellent opportunity for both degreed and non-degreed individuals to go into a rewarding and pleasurable career. Many pawnbrokers in history have become highly educated individuals through nothing more than on-the-job training. And their education as a practical one based on real-life experience.

10. You have greater job security.

Pawnbroking has been called a recession proof business flourishing in both good economic times and bad. There has never been a time in history when the pawnbroking industry has had to scale back operations or lay off employees because of economics. This fact offers great job security for valuable pawn shop employees.

Pawnbroking has been around for over 3000 years and by the nature of the industry one would expect it to be around at least that much longer. You will find many pawn shops that are second and third and even fourth-generation. The majority of shops are family owned and run, with employees being treated like a member of the family. Experienced pawnshop employees are a rare commodity, and are virtually guaranteed a lucrative position in any major market. This is a little known fact of the industry.

About the Author
Stephen Krupnik, a pawnbroker for 30 years, teaches, coaches, and consults for the pawnshop industry. Contact Steve at support@pawnshopperformer.com or for more information and FREE tips on a career in the pawnbroking industry, please visit http://www.PawnShopPerformer.com/

Read More......

Top Ten Myths About PawnShops

People have many common misconceptions about the pawnbroking industry. If you are considering getting a loan from a pawnbroker, buying or selling merchandise at a pawn shop, or seeking a career in the pawn industry, these are some facts that will help you understand the industry more accurately.


01. Pawn shops deal in stolen merchandise.

Pawnshops are a business just like any other. But unlike many other businesses, pawnshops have laws that keep them on the straight and narrow. Pawnshops are specially licensed and cooperate with police to prevent the movement of stolen merchandise. All pawn shops require valid government issued identification, and some are required to get your thumb print, picture, or both, depending on State and Local ordinance. When you pawn an item at most pawnshops, they take your name and address, verify it with your driver 's license and then inspect the item carefully. They test diamonds and gold for authenticity. If you are bringing in something like a TV or DVD, they test it to make sure it works properly. If it is a serial numbered item, it 's also recorded on the pawn ticket. There are important reasons for this level of scrutiny. They must submit a list of all merchandise received, including serial numbers, to the police. The police compare the descriptions and serial numbers against records of stolen merchandise. Anything stolen is recovered this way and returned to the owner. Why do they do this? If a stolen item is found in a shop and the item was not reported to the police by the pawnshop when it came in, they can be charged with receiving stolen merchandise. Also, anyone purchasing an item at a pawn shop can rest assured they are buying legitimate merchandise. Quite simply, it is in everyone 's best interest to keep stolen goods OUT of pawn shops! And to any pawnbroker worth their salt, reputation is everything.

02. The pawn shop wants to take my items in cheap and keep them.

To the contrary, pawnshops are lending institutions and the more money they lend to their customers, the more profit they can expect. The majority of pawnbrokers will go out of their way in assuring that you can repay your loan and redeem your items should you want to. The pawnbroker hopes to be able to make a profit from the loan fees that are charged, and return your pledged merchandise to you in hopes that you may pawn it again. The pawn shop does not want your merchandise, they want your money.

03. Most pawn customers lose the merchandise they pledged.

On average, about 80 percent of all loans are repaid. Repeat customers make up most of the business, similar to any other lending or retail establishment. Pawnbrokers know the vast majority of their customers because they often borrow against the same items over and over again. Pawnbrokers offer non-recourse loans, looking only to the item being pledged to recover their investment if the borrower chooses not to repay the loan. It is solely the choice of the customer whether they elect to repay the loan. However, most do.

04. Pawn shops have very high finance charges.

To provide their service, all lenders must charge rates commensurate with the size and duration of the loan, collateral, risk and recourse. Pawnbroker loans are small-dollar, short-duration loans. The item stands as the sole collateral and pawnbrokers are liable for the replacement value if something happens to the item while it is in their care. There are no hidden charges as with other lending institutions. A pawnbroker 's fees are usually far less than the charge for a bounced check, a payday loan, or a utility re-connecting.

05. Pawn shops downgrade neighborhoods and hurt property values.

Neighborhood property values are impacted by the appearance and care given to the properties. There is no factual basis to support a claim that an eye-pleasing pawn shop would negatively impact values. On the contrary, if they attract customers, they enhance the opportunities for other merchants and the community. While there may be some pawnshops located in undesirable areas or substandard facilities, the majority of pawn locations are clean, well lit, family oriented stores. It all depends on the type of client the pawn shop is trying to attract.

06. Pawn shops attract sleazy undesirable customers.

Indigents and derelicts have no assets to use as collateral. No one builds a business around these people. The typical pawnbroker 's loan customer is employed, living within a few miles of the store, and occasionally needs short-term cash for an unusual bill such as a medical expense or car repairs. Pawn loan customers are generally not customers because of lack of an income; they are customers because of a lack of personal savings. The typical retail customer is a bargain hunter, either by need or desire and comes from all walks of life. Most pawn shop customers are repeat customers.

07. Pawnbroking is a "bad times" business.

Pawnbrokers survive bad times if they make adjustments both on the retail floor and at the loan counters, but they do far better in good times. In hard times, customers move away to find employment, have less ability to repay their loans, and the value of all merchandise goes down. If goods sell for less, pawnbrokers must loan less thus earning a smaller return. In good times, customers have a greater ability to repay their loans and unredeemed merchandise sells faster because customers have more discretionary income.

08. Pawn shops are unregulated.

Pawnbroking is actually a heavily regulated business. Most of the regulations have been initiated, sponsored and supported by the pawnbroking industry. At the local or state level, most pawnbrokers are required to be licensed and regulated. At the federal level, they follow rules from the Bureau of Alcohol, Tobacco and Fire Arms (FFL license), and are regulated by the Federal Reserve Board (Truth In Lending Act, Regulation Z) in much the same way as banks. They are also required by the Patriot Act to check all customers against the Treasury Department 's database of known terrorists.

09. Pawn shops are the last resort for their customers.

Most pawn loan customers go to a pawn shop as a matter of convenience and trust. Customers find that pawn loans suit their needs much better than borrowing money from family or friends, or from any other provider of short-term credit. Pawnbrokers offer the consumer a quick and confidential way to borrow money. Short-term cash needs can be met with no credit check or legal consequences if the loan is not repaid. A customer receives a percentage of the value the pawnbroker believes the collateral would bring in a sale. Although the loan to collateral ratio varies depending on the type of goods pledged, a loan of 30-50 percent of the resale of the collateral is typical. Pawnbroking imposes a discipline on the borrower that other lenders do not. Pawn loans do not cause people to overextend credit, alienate family and friends, or go into bankruptcy.

10. Pawn shops are obsolete and old fashioned.

While pawnbroking is the oldest form of consumer credit dating back over 3000 years, and has remained nearly unchanged in structure during this time, there is a definite reason for this. A pawn loans is the only credit product that has ever been available offering the borrower a convenient form of access to short-term cash without creating an obligation. In this modern world of numerous forms of credit being liberally offered to consumers on a daily basis, no lending product can equal the civilized nature of a pawn loan. And no lending product can fulfill the needs of these borrowers as quickly and efficiently as a pawn loan. The demand for pawn loans are as great or greater than they have ever been in history, and the pawnbroking industry is continually improving and modernizing their approach to delivering this age old lending product to their customers.

About the Author
Stephen Krupnik, a pawnbroker for 30 years, teaches, coaches, and consults for the pawnshop industry. Contact Steve at support@pawnshopperformer.com or for more information and FREE tips on a career in the pawnbroking industry, please visit http://www.PawnShopPerformer.com/

Read More......

Pawnshop Loans Gain Favor as Property Owners Look to Trade up

As Chinese banks tighten granting loans for citizens to buy newer properties, an increasing number of prospective buyers are turning to pawnshops to finance their plans.

Wang, a 40-year-old Beijinger, currently owns an apartment worth about 700,000 yuan (94,434 U.S. dollars) in the capital. His desire to move-up to a larger second-hand apartment worth about one million yuan ran into a snag when the owner demanded payment in full. Wang, however, only had slightly more than 600,000 yuan.


The dreams of millions of Chinese looking to buy better properties in the country's red-hot real estate market were dealt a blow in September with a circular jointly issued by China's central bank and the China Banking Regulatory Commission (CBRC).

The circular stated that for people who have already bought houses with a bank loan, for those who wish to trade-up the down payment must be 40 percent of the purchase price. In addition, the loan interest rate should not be lower than 1.1 times the central bank's benchmark interest rate.

With the new rules blocking his dream, Wang decided that borrowing money from bank was too costly and instead turned to a pawnshop.

He chose to mortgage his first apartment for 400,000 yuan with Beijing Huaxia Pawnshop Co, Ltd. He then registered with a real estate agent to sell his first apartment. He soon made a deal where the buyer agreed to give him a down payment of 400,000 yuan.

With the money, Wang then paid off his pawnshop loan and successfully bought the larger apartment without a bank loan.

Li Tiejun, a Beijing Huaxia Pawnshop Co, Ltd manager, said since the banks had tightened the rules for loans on second apartments, the trade volume in respect of real estate at his pawnshop had soared 40 percent.

Likewise, Xu Yunpeng, manager of Beijing Bao Rui Tong Pawnshop, claimed its trade volume in real estate had risen 30 percent since September.

In Thursday's Beijing Daily newspaper some pawnshops advertised for potential customers by claiming they will give out money for mortgages as quick as three to five days.

Xu suggested that such a mortgage should not exceed any more than six months, otherwise the redemption fee would become too large to make the deal worthwhile for customers.

Read More......

Dirt-broke Resort To Pawnshops For Easy Money

Stay-at-home mom Wahyuni looked relieved as she walked away from the pawnshop in Senen, Central Jakarta.

"Thank God, now I will be able to pay for my child's diploma," said the resident of the municipality's subdistrict of Kali Pasir.

She had just pocketed several hundred thousand rupiah in exchange for her gold jewelry. One of her six children recently graduated from a nearby vocational school in Gambir, she explained.

A loyal customer for more than 30 years, Wahyuni said she frequented the pawnshop because it was easy to get money quickly there at low interest rates.

"The rate is much cheaper than the interest charged by the loan shark in my kampong. Even if he values an item at one million rupiah, we only get Rp 900,000 and still have to pay monthly interest," she said.

Hery Wibowo, 35, was at the pawnshop for the same reason. "The repayment plan is very flexible. We can either pay the monthly installment or the interest only, and whenever we cannot pay on the due date, they allow us an extension."

More and more people are relying on the services of government-owned pawnshops. The figures recorded in Perum Pegadaian's annual report more than tripled from a little over 5 million in 1996 to over 16 million in 2005.

Clients come not only from the lower class, but also from the middle class.

A tastefully made up woman clutching a Hermes tote bag was among the customers at the pawnshop in Senen on Wednesday.

Rully Yusuf, the business development and operational manager of the regional office of the state-owned pawnshop in Senen, said business peaked in periods like Ramadhan, Idul Fitri, Christmas and New Year's, as well as during the midyear school break.

"During the first two weeks of Ramadhan, we gave out 40 percent more loans. I guess housewives needed extra money to buy supplies for baking Idul Fitri cookies to sell over the holiday," he said Wednesday.

He said it was common for people to reclaim their belongings before Idul Fitri.

Rully predicted many more people would come in for loans two weeks after the Idul Fitri holiday.

He said that while the pawnshop offered many different services, including deposit services, loans continued to contribute about 98 percent of the office's income.

"The total value of loans has increased tenfold from Rp 414 billion (US$46 million) in 1996 to Rp 4 trillion in 2005."

(The Jakarta Post)

Read More......

Robbery attempt in Kebumen pawnshop

KEBUMEN, Central Java: Five armed robbers attempted to rob a pawnshop in Kebumen, Central Java, early Monday morning.

The attempt was foiled by local police. A police officer who asked to remain anonymous said the five robbers were identified as Sunardiyana, 39; Sugiyono, 54; Supriyadi, 57; Siyanto, 40, and Sugiyono, 49.

Sunardiyana was a former member of the Indonesian Military, while Sugiyono was a former local village head, the officer said.

He said there were no casualties. All of the robbers were being detained at the local police office.

Police had seized a Kijang van and a bag containing a crowbar and screwdriver as well as the sketch of the pawnshop location.

(Archipelago)

Read More......

Pawnshop's Operator Expands Its Small-Business

Economist Intelligence Unit (IEU) says that pawnshop have become increasingly popular as a source of funding in Indonesia since the Asian financial crisis of 1997-98. This has resulted in booming business for state-owned Perusahaan Umum Pegadaian, the country’s only licensed pawn brokerage.

It's true ? Not at all !. Public views should recognizing. There are consumerize level that on high grade if we watched intensively in several big cities, likes Jakarta, Surabaya, Makassar and Denpasar. Public needs emergence fund. They wants the fastest loans. These are the main problems.

Analysis EIU then tells. Following, the economic crisis and the subsequent government bail-out of banks in the late 1990s, many local financial institutions became reluctant to lend to customers because of the heightened risk of defaults and the ongoing, and lengthy, restructuring process. Banks’ lending rates have remained high, averaging about 15-19%. Their expansion of credit has stayed relatively slow: they extended Rp. 79.4trn in new loans in 2002, compared with Rp. 56.8trn the year before.


Pegadaian has taken advantage of this market opening by increasing its lending to small businesses and consumers. Unlike a bank, it does not require a customer to open an account or to make a time deposit before it extends a loan. Typically, one of its pawn shops extends a short-term loan (up to a maximum of four months), ranging from Rp. 20,000 to Rp. 250m, after a customer offers property—such as jewellery, cars or electronic goods—as collateral. It holds these goods at the shop until a specific date, when the customer buys back the items at a set interest rate. (It also provides custodian services at a low cost for items such as electronics, autos and precious stones, much like the services available at larger banks but in a different way.) Customers authorise the pegadaian to sell the collateral through auction if they fail to settle their loans. These have proved to be profitable businesses: Pegadaian’s profits rose to Rp. 229.45bn in 2005, from Rp. 162.87bn a year before. It increased its lending, to Rp. 14.1trn, in 2005.

Pegadaian raises much of the money for these small-business and personal loans by issuing bonds in the domestic market. In 2004 it sold Rp. 400bn in local-currency bonds, and it plans to offer another Rp. 500bn in July 2005. Most of its funding is medium to long term; in addition to bonds, it issues bank and government loans and medium-term notes. The company is not allowed to raise deposits from customers.

Pegadaian in 2005 has more than 12.5m customers nationwide, most of whom live in rural areas, according to Indonesian rating agency Pefindo. Its nearly 6,000 employees provide services through 819 outlets in more than 14 cities across the country, including 13 new shops that opened in 2006.

Read More......

ABOUT PAWN SHOP

PAWN is

• To deposit as security, as for money borrowed
• To exchange personal proper for money as a secured loan. A pawn shop sells unclaimed pawned goods. Glenn Miller famously pawned his trombone several times before making good
• Rahn = collateral ~ An arrangement whereby a valuable asset is placed as collateral for a debt. The collateral may be disposed of in the event of a default.
• In law a pledge (also pawn) is a bailment of personal property as a security for some debt or engagement^[1] The term is also used to denote the property which constitutes the security

PAWN SHOP IS

• a shop where loans are made with personal property as security

IN INDONESIA

• Pawn shop is a national finance institute that work under supervisor by Indonesian financial department, which created to fulfill people who want to apply short term loan and get the money as soon as possible. Customer just brings the goods that will become collateral and then fill the form. While customer filling the form, appraiser will appraise the collateral goods then appraiser will give the amount of money to the customer. The limitation time to pay the loan is about 4 months. After that if customer cant pay the loan, pawn shop will do the auction for that goods.

Read More......