Pawning goes posh in Manila

The Straits Times
February 23, 2009
By Alastair McIndoe, Philippines Correspondent

MANILA, PHILIPPINES: The Agencia de Empenos de Makati in Manila’s financial district is not a typical iron-grilled pawnshop reeking of financial desperation.

Inside, it looks like a private art gallery. Paintings by famous Filipino artists hang from the walls. There is a small glass-panelled cabinet of expensive Swiss watches in their cases. Customers wait on sofas while their goods are being valued.

Owner Michael Dizon, 40, says business has risen sharply over the past three months – a trend that so far reflects the extremely tight lending policies of jittery local banks, rather than the direct fallout of the global economic meltdown.

‘We saw the same thing during the Asian financial crisis over a decade ago,’ said Mr Dizon. ‘Our clients are not broke, but they need to borrow money quickly, sometimes for their businesses, because the banks just aren’t lending right now.’

High-street pawnbrokers are also seeing brisker business. ‘We’ve been gaining more customers since January,’ said Ms Lisa Manding, human resources director at Tambunting, one of the largest pawnbroking chains. She attributes this to the early stirrings of tougher economic times ahead.

The Philippine Central Bank worries about workers laid off by the crisis turning to pawnbrokers to raise cash. The bank believes it will be bad business for both sides. ‘With no income, they won’t be able to redeem their items, and pawnbrokers prosper only if their loan accounts are turning over,’ said Mr Fernando Caballa, who heads the central bank department regulating the pawnbroking industry.

There are some 14,000 licensed pawnshops in the Philippines, 60 per cent in the capital region and neighbouring provinces. For the poor and low-wage earners, they are one of the few available lines of credit. Mobile phones, jewellery and appliances are the usual collateral for short-term loans of around 2,000 pesos (S$63).

The better-off generally borrow between 20,000 and 200,000 pesos in Mr Dizon’s shop. Watches and jewellery are his most-pawned items.

Monthly interest rates are between 3.5 and 5.5 per cent. With that averaging 54 per cent a year, borrowing money from a pawnshop is expensive.

The industry’s loan portfolio totalled 10 billion pesos at end-2007, according to the latest central bank data. The Chamber of Pawnbrokers of the Philippines claims a redemption rate of 75 per cent for its members. Unredeemed goods may be sold 90 days after the expiry of the contract date, which is for a minimum 30-day term.

Going to a pawnshop is rarely a cause for embarrassment here. For one thing, too many people use them. And the look of the big high-street chains, such as Tambunting and M. Lhuillier, is far removed from pawnbroking’s desperate image.

Still, staff at M. Lhuillier bristle at being called pawnbrokers. ‘We’re a financial services company,’ said a senior company official. – Straits Times