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

pay e t fa ilitatio . Additio ally so e pa shops also ser e as ash i -

ash out e ters a d pro ide o ile a ki g ser i es. There ere ~ 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.

• Insurance

Insurance 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

• Contact:

Ken Research

Ankur Gupta, Head Marketing & Communications

Ankur@kenresearch.com

+91-9015378249

• Website : www.kenresearch.com

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