Conclusion
THEY were the cash source of last resort. Today, pawnshops are treated differently.
“Filipinos then think of pawnshops as their last resort to obtain credit and solve their financial difficulties,” Central Bank Deputy Governor Nestor A. Espenilla Jr. told the BusinessMirror in response to a query. “Today, pawnshops offer multiservice, such as money
remittance services, foreign-exchange/money-changing activities; plus, you can pay your bills too in a pawnshop.”
Despite their relatively limited service offers compared to actual banks, pawnshops have grown to have paralleled the reach of banks in the country—particularly in areas where banks refuse to penetrate due to issues of market profitability.
As of end-2016, there are 16,698 pawnshops—including both head offices and branches. Banks, in comparison, have 28,297 total head offices and branches nationwide.
While the number of pawnshops are only about two-thirds that of actual banks in the country, these pawnshops are present in 1,196 out of 1,634 cities and municipalities. This means that pawnshops cover about 73 percent of local government units (LGUs), higher than the reach of banks, which is at 64 percent.
Additionally, among unbanked LGUs—or the places with no banking presence, 44 percent have access to pawnshops as of the latest data.
“With their extensive network, pawnshops provide readily access points for financial services, especially in areas where banks presence is lacking,” Espenilla said. “Thus, pawnshops are helpful in BSP’s advocacy of expanding financial inclusion.”
Regulatory environment
ACCORDING to Espenilla, the BSP’s recent policy issuances enhancing the regulations on pawnshops and money service businesses help ensure financial service access points are properly supervised for their effective compliance with antimoney laundering, internal control, consumer protection and other existing rules and guidelines, in recognition of their important role in the provision of basic financial services, especially to the unbanked.
In Circular 938, all existing pawnshop operators are given one year from the date of effectivity of the Circular or until 28 January 2018 to secure their Authority to Operate (AtO) a pawnshop. Upon expiration of the transitory period, all acknowledgement of registrations previously issued shall be automatically revoked.
Asked for an update on the industry’s compliance on the circular, Espenilla said existing BSP-registered pawnshops are still in the process of complying with the new licensing framework to secure their respective AtO.
“The BSP, through the Integrated Supervision Department I, continuously conduct road shows on the new licensing and registration guidelines/process,” the deputy governor said. “This is to assist and facilitate compliance of the industry with the requirements.”
Proactive stance
ESPENILLA added that pawnshop complaints or incidents received by the BSP has since significantly gone down.
“It seems that our pawnshop operators are able to handle their customers concerns immediately,” Espenilla said. “The BSP adopts a proactive stance to ensure consumer protection of those that transact with all BSP-supervised financial institutions and, in particular, builds the public confidence and trust in doing business with pawnshops.”
Looking ahead, the BSP said pawnshops are likely to continue to evolve in the nature of their services. As such, the central bank’s regulations will likely evolve to cover risks associated with the foresight of an evolved pawnshop industry.
“With the increasing popularity of fintech companies, pawnshop operators feel the need to implement the latest technological innovations to keep up with the demands of the market,” Espenilla said. “From the traditional way of accepting pawns, online pawning ‘e-pawning’ are now being offered/seen that enable customers to pawn their personal property through electronic channels without personally visiting the pawnshop office. Electronic gadgets can now likewise be pawned.”
With these various kinds of business models that evolved over time, the BSP said its the regulations were and will be “carefully calibrated” to handle these changing activities.
Test and learn
ESPENILLA particularly cited the different classifications of Pawnshop Operator License as an example of the careful calibration of regulatory measures to keep up with the industry’s changing needs.
The BSP has implemented different classifications of Pawnshop Operator License, with corresponding amount of required capitalization have been introduced depending on the type/level of complexity they will take on in the conduct of pawn brokering business.
Espenilla sees “challenging years ahead, both for the regulator and pawnshop operators as the industry becomes a more complicated business from the basic pawnshop years ago”.
“As the financial system becomes more complex and varied, the system becomes more susceptible to reputational, legal and money- laundering risks, among others,” Espenilla said. “But at the same time, we have seen a lot of opportunities for the pawnshop industry to grow with the diversified products and services available in the market that they can also offer as corollary business.”
Espenilla said the BSP will continue to adopt and implement its “test and learn” approach as it applies to the evolving pawnshop industry.
Image credits: Nonoy Lacza