Franchising Part II: FAQ - Nature of pawnshop business
1) What is the nature of Pawnshop Business and the Pawnshop Industry in the Philippines?
In observing the growth of micro enterprises in any Philippine cities and town areas are one of the sign that people nowadays wants to have additional income due to the rising prices of basic commodities and services, accompanying the implementation of Value Added Tax (VAT) and the unpredictable increase of crude oil in the world market to meet the needs of their families. Even the labor sector specifically the employees are in search for things to sell in their offices and work places to augment their income. So even the business and investment sector are now looking for crisis proof business which will entail them a good return on their investment. They don’t want to risk their money to start up business due to ineffective operating systems and knowledge about the market.
But for the Pawnshop Industry, economic crisis is the reason why they are in the business. The people today are learning that they could get a better deal and a better buy in a pawnshop than in a regular retail store. But before we go to Pawnshop Services and Operation let us discuss the Pawnshop’s Nature and its Industry;
The Pawnshop Owner or simply describes as Pawnbrokers (collateral loan brokers) engage in short term credit. This loan is made at a relatively high interest rates based purely on the intrinsic value of the collateral. The business answers the huge loan demand of the people belonging to the low income strata which left unattended by the banking system. The bank usually requires collateral such as real estate properties, salary statements or payrolls, tangible assets like equipments, machines, plant etc., which the middle class does not possess. They also require an arduous and tedious processing which result to untimely release of short-term credit which they needed to pay their over due bills and other financial obligations.
The bank also doesn’t allow small amount of loans ( Php 200.00 to Php 2,000.00) just to pay the said bills, tuition fees and other emergency expenses arises which are not part of the budget allocation for the month.. This economic opportunity – a huge short term credit demand - left unattended in the market by banks and other financial institution made the Pawnshop as the leading grassroots money lender, serving as a source of credit to millions of Filipinos, providing average small-secured loans - Php 200.00 to Php 1,000.00) for a brief time period (2 to 4 months).
In 1999, there was one (1) pawnshop for every 8,756 people in the country and today in the Philippines there are more than 10,000 registered pawnshops and 5,000 pawnshop owners according to the Bangko Sentral ng Pilipinas (BSP) that is up close to 3000 Pawnshop in 2000. This figure far exceeds the number of banks and bank owners in the country.
The BSP and other financial analyst have seen a stable growth rate of 10 -20% in the next several years which means the Philippine Economy can still accommodate 1000 to 2000 new Pawnshops due to the following reasons;
i. HISTORIC GROWTH REGARDLESS OF ECONOMY
Pawnshop does best during periods of high unemployment and tight money when customers seek to convert property to cash. They also do extremely well during periods of economic expansion, when loans tend to be short term and used for meeting unexpected bills for daily consumption, medical expenses, appliance replacement, and home and vehicle repairs.
ii. FAVORABLE LENDING CLIMATE
The Pawnshop Industry is regulated and governed by Presidential Decree No.114 decreed by the late President Marcos in the early 70’s. P.D. 114 has always been favorable to the pawnshop industry. This is the reason why number of pawnshops has increased in previous years.
iii. PROFESSIONALISM AND FRANCHISING
Pawnshop are now manage by Professional Staff and Officers which results to more innovative marketing strategy and customer care that benefits its clientele. It also hires and trains its staff for courtesy and standardized procedures in dealing with the customers particularly those who not been privilege for their education, explaining to them the policies and regulation in entering the short term credit such as the date of expiration and the interest incurred on the said short term loan. Franchising the pawnshop also spear-headed the growth as more interested franchisees wants to invest in pawnshop business, usually amazed with growth of pawnshop in their community, like mushroom sprouting around its corners of the business area. Franchising helps neophyte entrepreneur to achieve success rate of operation and return on their investments at 97% rate compared to 33.33% rate of business success in a trial and error operation system of a starting business.
iv. IMPROVING PUBLIC IMAGE
Sensitive to the historic, unfavorable image of pawnshops, many modern pawnshop operators are striving to win public approval and acceptance. Modern Pawnshop owners are participating in Civic and Religious Organization which has a mission in helping the less privilege sector of society by continuous education in Early Childhood, Earning Additional Income, and Spiritual Nourishment Programs which is vital to regain their dignity and become productive citizens of our society. For instance, SMDC Pawnshop and Jewelry CO., helps the young children of the poor for their Preschool to College Education by sponsoring them in the programs for the poor children and youngsters of Our Lady of Lourdes Catholic Charismatic Foundation Inc. This is part of the social responsibilities being accounted for by the Pawnshop business.
Nowadays, many people see pawnshops as legitimate businesses that pay taxes and hire people, just like other respectable businesses. In the past, the poor rep*tation was earned, but pawnbrokers have done a good job dispelling those old scenarios and running clean, respectable operations. If the pawnshop owner does not run a respectable pawnshop, most likely he will not make to walk in the ladder of success of pawnshop industry.