Regulation of Pawnshops (Concluded from last week)

FINANCIAL consumers, especially those who transact with pawnshops, would be happy to know that the Bangko Sentral ng Pilipinas (BSP) actively supervises pawnshop operations.

In addition to coordinating with local government units in weeding out businesses illegally operating as pawnshops, the Bangko Sentral also conducts inspections of pawnshops to ensure that they adhere to applicable laws, rules and regulations.

The Integrated Supervision Department I (ISD I) of the BSP said that beginning 2012, inspections of pawnshops have been intensified “owing to the increasing role that these institutions play in bringing about formal financial services to the Filipino people.”

These inspections focus on consumer protection and compliance with Anti-Money Laundering Regulations.

The popularity of pawnshops has also caught the attention of the country’s lawmakers. In June 2010, a bill co-authored and sponsored by Senators Miriam Defensor-Santiago and Manuel Villar was filed in the Senate to amend the Pawnshop Regulation Act. Among the proposed provisions of the bill are the following:

• Increase the required capitalization of pawnshop from P100,000 to P1,000,000;

• Only a corporation will be allowed to operate as a pawnshop;

• Redemption period will be limited on electronic items; and

• Transfer the supervision and regulations of pawnshops to the Securities and Exchange Commission (SEC).

However, as of 31 December 2011, no further action has been taken on the said Senate bill.

The ISD I noted that pawnshops presently cater to all segments of the population “as their operations vary depending on the location of the outlet and needs of the customers.” In Makati City, for example, there are several pawnshops that accept works of art (paintings, sculpture), expensive watches (Breitling, Breguet, Rolex) and bags (Bottega Veneta, Chanel, Louie Vuitton).

On the other hand, outlets located in the countryside such as those in San Mariano, Isabela, cater to customers offering usual personal items such as jewelries and appliance sets, or even tractors used in farming.

The ISD I pointed out that pawnshop customers generally belong to the lower C, D, E, and F segment “since these are the ones who often avail of short or quick-term loans.” Most of these consumers also lack the capacity to borrow from banks given the dearth of proper or formal sources of information and access to bank lending facilities.

Pawnshops currently face stiff competition from lending companies; thrift and rural banks which are allowed by law to grant loans against jewelry and other consumer or personal products; and credit card issuing institutions.

However, the continuous growth of remittances from overseas Filipino workers (OFWs) has encouraged most pawnshops to engage in remittance agency (RA) and foreign exchange dealing/money changing (FX/MC).

As of 31 December 2011, pawnshops that engage in RA and FXD/MC activities totaled 5,677s—consisting of 691 head offices and 4,986 branches.

However, the ISD I said that although the abovementioned corollary businesses augment the pawnshops’ profits, these require a significant amount of investment in information technology facilities, which only a handful of pawnshop can afford and maintain.

In conclusion, many analysts believe that pawnshop businesses thrive during economic hardships as more people pawn their personal items to fund their liquidity needs. Pawnshops, in this regard, have proved to be resilient during these changing times.

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