Disadvantages Of Pawnshops

Pawnshops are often perceived as the “bank of the poor”. (The Times in Plain English, 2013) They have a high outreach, are very often financially viable and have several advantages, compared to other institutions of the micro financial sector. Clients cannot fall into long-term indebtedness, due to the fact that they have to deposit a pawn of at least the same value. It is notable however that the value of loan granted to a borrower is only up to one-third (1/3) of the pawned item’s value. For the pawnshop, this pawn reduces the risk to provide a loan to low-income tier, and monitoring is not necessary. Compared with banks, pawnshops do not impose as many documentary requirements before releasing cash to customers. Moreover, the latter are more accessible, as they may be found even in remote areas where banks do not operate.

But despite the essential role these financial service providers play, pawnshops still suffer from a bad reputation of preying on middle- and low-income Filipinos. The perception remains that pawnshops have a tendency to take advantage of people in need of cash through profiteering, and that many of them are fly-by-night operators that steal pawned jewelry. There also exists a social connotation that pawnshops are a haven for thieves because these establishments supposedly knowingly accept stolen items, even conspiring with the felons. (Remo, 2012)

Pawnshops’ notoriety however did not hamper the growth of the pawnbroking industry in the country. With