Pawnbrokers shine in Singapore as middle class feel the pinch

November 1, 2013 12:02 pm

Pawnbrokers shine in Singapore as middle class feel the pinch

By Jeremy Grant in Singapore

At a pawnshop in Bendemeer shopping centre in Singapore, Janani Amirthalinga is swapping a gold bangle, ring and pair of earrings to pay her daughters’ school fees. “My husband and I have just bought a house so all my money’s stuck there,” Mrs Amirthalinga says. Even though she earns S$3,000 ($2,400) a month as an administrator and her husband works as well, the monthly family income is insufficient, she says.She is not the only one. Indeed, such is demand across parts of southeast Asia – where household debt is rising – that ValueMax, where she is carrying out her transaction, this week became the third pawnshop to list on the Singapore stock exchange.

Pawning jewellery is not merely a fast way to land cash – S$1,300 in Ms Amirthalinga’s case – but almost as cheap as unsecured bank loans. Typically pawnbrokers in Singapore charge an effective annual percentage rate of 17 per cent, just above the 15.4 per cent offered atUnited Overseas Bank, a local lender with a branch in the same shopping centre.

However, pawnbrokers have the advantage of not requiring credit checks or proof of salary, and can arrange loans faster than banks.

Hence millions of people across the region are turning to pawnshops as families feel the squeeze from rising living costs and ballooning household and consumer debt.

After five years of robust growth since the global financial crisis, and cheap credit fuelled by loose monetary policy in advanced economies, lower- and middle-income families are turning to pawn shops to make up the difference as their economies slow.

This week Standard & Poor’s, the rating agency, cited increasing household leverage, mainly from rising mortgages, as a risk factor for Asian banks’ creditworthiness.

It said that Malaysia, Thailand and Singapore had the highest household debt to gross domestic product ratios in Asia. Malaysia topped the list at 80 per cent of GDP, up from 60 per cent in 2008.

Economists are also worried about high levels of consumer debt in Thailand, which this week narrowly emerged from technical recession. On Thursday, data showed continued export weakness, and a softening in consumer demand.

“Bottom line is that with costs rising, people in the middle to lower end [of the income scale] will be looking to supplement their income wherever they can,” says Song Seng Wun, economist at CIMB, a Malaysian bank.

Historically high prices for gold in the past two years have added to the rush to pawn personal belongings, as people take the opportunity to cash in the value of their family jewellery.

In Singapore, about 70 per cent of items pawned at the city-state’s 200 pawn outlets are gold. “People are saying ‘the gold price looks good, let’s pawn grandma’s gold chain and get it back next month’,” says Mr Song.

In Thailand the largest pawnshop operator, EasyMoney, has seen an up to 20 per cent rise in the number of customers using its outlets in recent months.

Such is the growth in the pawn business that ValueMax, operator of the outlet at Bendemeer and of 15 others like it in Singapore, plans to expand not only in neighbouring Malaysia – where it has four shops – but outside Asia too, says Yeah Lee Ching, ValueMax’s executive director.

The company will fund that by using 60 per cent of S$66m it raised this week in a listing on the Singapore stock exchange.

While some discount lenders have come under fire for high interest rates, Ms Yeah says that not only does pawning offer cheaper rates than other lenders, it also does not add directly to debt.

“Customers are mortgaging items that they already own, and monetising personal assets does not increase household debt,” she says. “There’s an increased social acceptance of pawnbroking as a means to secure short term, secured financing.”

Nor are the types of people who use pawnbrokers only the financially stretched. Wealthy people in Singapore also use ValueMax outlets, pawning gold bars or Rolex watches, which can command up to 60 per cent of their purchase price in cash.

“We see customers from all walks of life. They include wealthy individuals who need to borrow short term for business ventures or investments, or small businesses with a need to tide over their cash flow needs,” says Ms Yeah. “Sometimes they just need the money very quickly.”