Philippines Pawnshop Market Report – 2020: Ken Research

The basic idea behind the pawnshops is to lend money against collateral. The banks also perform the similar function however there are certain fundamental differences between the operations and lending procedure from both source of finances i.e. banks and pawnshops. It has been observed that the customers generally approach pawnshops when there is urgent and upfront need of cash with the individuals. Moreover, when the customer does not have a strong credit worthiness that disable him to borrow money from formal sources of finance, in that case the customer resort to the pawnshops.

Pawnshops generally lend money to the customer against some articles been put in place of equal or higher value. The credit is offered on an estimated market value of the asset and the item is kept until the principal loan and interest amount is paid back. At the same time, the banks also provide personal loans; however, the banks impose stricter requirements and tend to have longer processing times in comparison with a pawnshop. The poor functioning of the banks in Philippines have provided a higher popularity to other informal sources of credit such as pawnshops. Pawnshops these days have been growing at a remarkable pace in terms of their reach and the credit provided to the people. The major catalyst for the growth of pawnshops have been the minimal transaction costs on the part of borrower, easy and quick availability of loan and higher accessibility of pawnshops even under the remote areas of the country.

The loan disbursed in 2015 augmented to PHP ~ billion on the account of advent of online pawning in the country which is a new advancement. Lack of credit facilities, lower credit card penetration and incomplete credit histories has prompted the borrowers to resort to the pawnshops since they require just a valid identity proof and collateral to provide the credit. Pawnshops generally lend money to the customer against some articles been put in place of equal or higher value. The credit is offered on an estimated market value of the asset and the item is kept until the principal loan and interest amount is paid back.

The number of pawnshops in the Philippines was registered at ~ as of December 2015. The lower income class and the middle income class of the Filipino society are primarily served by the pawnshops for their remittance and easy credit requirements since this population cluster constitute the unbanked members of the population. As of September 2015, ~ financial institutions were regulated by the central bank. The number of pawnshops augmented at a CAGR of ~% from ~ in 2010. The broader reach of pawnshops has been fundamentally attributed to the ease of establishment. In contrast to a bank, a pawnshop requires limited space, fewer staff, and requires much less capital, where it is mandatory for each pawnshop branch to have a capital of just PHP ~, as stated by BSP. Out of the ~ pawnshops in 2015, around ~ also provide certain auxiliary services such as remittances facilitation, money changing, and bills payment facilitation. Additionally some pawnshops also serve as “cash in-cash out centers” and provide mobile banking services. There were ~ head offices and ~ branches or agencies of pawnshops as on December 2015.

Although customers can pawn anything of value, however the general items accepted by pawnshops differ among different pawnshops. It has been observed that as of 2015, jewellery (especially gold or gold plated) stood as the most pawned item in the pawnshops. This is majorly due to the fact that jewellery is usually the most valuable thing that a person owns and it is always fashionable. Moreover jewellery generally has a sentimental value attached to it. Jewellery holds around ~% share in the total pawned items as per 2015. Cebuana Lhuillier is the largest pawnshop in the pawning segment of their business in 2015, accounting for a market share of ~% in the pawning segment with a loan disbursement of PHP ~ billion. Cebuana has the largest chain of pawnshops in the country with above ~ pawnshops recorded as of 2015. Cebuana Lhuillier pawnshop advertises their brand as a caring non banking financial institution with Tri media campaigns. The direct competitor of Cebuana Lhuillier is M Lhuillier with a share of ~% in the market pie.

In-country Filipinos characterized by domestic migrants who have moved for better economic and employment opportunities and permanent residents together accounted for approximately 80% of the total domestic remittances. Additionally, approximately 20% of the overall domestic remittances were funded by people/families who have also received international remittances from Filipinos in other countries. Domestic remittances have been transferred from 143 cities inside 78 provinces of the Philippines. The top 10 cities amongst these provinces included Quezon City, Manila, Makati, Caloocan, Paranaque, Pasig, Mandaluyong, Taguig, Pasay and Baguio. Continued expansion of the Philippine economy and the generation of local income have contributed greatly to the distribution of wealth countrywide. The increase in local migration over the years has been favorable to the growth of domestic money transfers. The total market for domestic remittances was valued at PHP ~ billion in 2015 out of which PHP ~ billion was catered by the pawnshops which witnessed expansion from PHP ~ billion in the year 2010.

Comparing to other financial institutions, pawnshops outnumbered savings and loans associations, universal and commercial banks, and rural banks. Palawan Pawnshop, Cebuana Lhuillier, M Lhuillier and RD Pawnshop are some of the largest pawnshop businesses in the Philippines, offering a variety of money transfer services. The aforementioned players, coupled with other smaller pawnshops spread across the geography of the Philippines, constituted the largest share in the Philippines domestic remittance market since, the people generally need a bank account to transfer via banks. It has been estimated that only ~ out of 10 adult Filipinos had their own accounts with the banks. It has been scrutinized that number of remittance transactions has been growing at a rapid rate especially through the pawnshops and have reached close to the pawning transactions and even surpassed pawning for some pawnshops.

With the rising penetration of internet in Philippines, the country has observed a new trend for online pawning. The country saw the launch of its first online pawnshop named PawnHero in 2015 in partnership with 2GO. The internet penetration in the country has increased at a startling rate from ~% in 2009 to ~% in 2015. This increase in internet penetration is expected to provide an impetus to the online pawning in the country. In a study conducted by the PawnHero themselves, it was established that ~ % feel safe with 2GO picking up their items. PawnHero charges the minimum interest rate of 2.99% which is levied flat on all the months and customers can even pawn their articles for upto an year without visiting the pawnshop many times unlike the traditional pawnshops.PawnHero has factually turned all the available internet and mobile phone connections into a pawnshop which means millions of centres for the PawnHero combined with 900 2GO outlets.Thus, within a shorter time span, PawnHero have extended their reach to the whole country.

In Philippines, monthly utilization of a payment service provider was majorly frequent in order to send or receive money. Payment of bills through a formal payment service provider in the Philippines has largely witnessed confinement to urban areas and seldom takes place in the rural areas, although a portion of the population also uses informal methods, such as friends and family, to make bill payments. A majority of the transactions of bill payments with payment centers such as Bayad take place in the urban areas. On the other hand, the use of informal service providers has been largely observed in both semi-urban and rural areas. Moreover, kiosks have gained high acceptance amongst Filipinos. The kiosk use computer software to process bill payment transactions. The inception of such a system for bill payments has been beneficial especially for the unbaked population of the Philippines.

The unbanked Filipinos also use pawnshops for paying various kinds of bills. Although till now pawnshops are not much preferred for payment of bills, however the ubiquity of pawnshops will make certain the growth of bill payment services through pawnshops. The average transaction fee paid by the Filipinos for making bill payments has ranged between ~ pesos to ~ pesos at the pawnshops. It has been observed that in 2015, around ~% of the bill payment transactions done at the pawnshops were for paying cellular phone or landline bills. This is due to large number of cellular phone users in the country. It has been recorded that in 2015 the cellular subscriptions in the country was more than ~ million.

• InsuranceInsurance through pawnshops has been a newer segment for the pawnshops

and yet at its nascent stage. The pawnshops have been providing low cost insurance services ranging from just PHP ~ to PHP ~. The insurances provided by the pawnshops usually come in the combination of different kinds of services such as accident, death, burial assistance and others. These policies vary from ~ to ~ months.

Lack of banking offices in several regions in Philippines has led to the emergence and growth of other financial service providers (FSPs) such as pawnshops. These entities have greatly helped to increase the access to financial services in un-served and underserved regions in the Philippines. A higher number of people have sought to make use of a broad assortment of services offered by pawnshops such as credit, money transfer, money changing and several others. In 2015, ~% of the total municipalities had access to other financial service providers such as MTOs and Pawnshops. The unemployment rate in Philippines has consistently remained above ~% during the last few years. The unemployed individuals usually have basic requirements such as feeding their family, taking care of the educational expenses of their children such as tuition fees, uniforms and other school supplies. The most common and the quickest solution for such people is taking credit from pawnshops by pawning their personal items. Pawnshops can address their urgent need for even small amounts of cash.

With the rising penetration of internet in Philippines, the country has observed a new trend for online pawning. The country saw the launch of its first online pawnshop named PawnHero in 2015 in partnership with 2GO. The internet penetration in the country has increased at a startling rate from ~% in 2009 to ~% in 2015. Banks generally are reluctant to provide loans to the LGUs due to their poor credit worthiness which arises from the incomplete information that they have about their own financial operations, lack of predictable and secure asset- revenue base and several other reasons. Similarly, the banks are also much disinclined to provide credit to the middle and low class population mainly due to lack of the proper credit history or lack of any documentation for facilitating the credit provision. This is the reason they turn to the pawnshops for their credit need which charge a higher interest rate, though skipping the requirement for most of the documentation.

The main reasons for the growth of pawnshops have been the poor functioning and reach of the banks, minimal transaction costs on the part of borrower, easy and quick availability of loan and wide reach of pawnshops in even the remote areas of the country. The loan disbursed from the pawnshops has increased from PHP ~ billion in 2010 to PHP ~ Billion in 2015. The pawning market has grown at a CAGR of ~% through the review period. The pawning market in the Philippines is projected to witness revenue worth PHP ~ billion by 2020, augmenting at a CAGR of ~% during 2016-2020. Service sector has contributed around ~% to the GDP of the country in 2015. Surge in the service sector of the country will also lead to increase in requirements of short term cash by service class and middle class families.

Continued growth in internal migration is expected to sustain the growth of money transfers taking place in the Philippines. The Philippines has outshined India in terms of voice-based outsourced projects and has become the worldwide leader in the call center industry. Over the past six years, the BPO industry in the country has augmented at an average rate of ~%, surpassing the global ~% growth rate. The sector is expected to reach USD ~ billion in revenue with around ~million employees were working in BPO sector. With the presence a strong ICT-BPO industry, the numbers of people employed in this sector are expected to increase considerably in the coming years. This will directly translate into a higher demand for domestic remittance services as more people are expected to migrate to urban areas, particularly Metro Manila, to seek employment, improved career prospects and a better livelihood.

• Source: https://www.kenresearch.com/banking-financial-services-and-insurance/financial-services/philippines-pawnshops-market-research-report/8884-93.html

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