THE ECONOMICS OF PAWNBROKING IN SINGAPORE

Abstract

In 1994, pawnshops in Singapore provided a total number of 2.6 million loans, amounting to a significant S$ 954 million. Thus, even allowing for multiple loans to a core group of customers, pawnshops probably serve several hundred thousands of Singaporeans each year. Hence, although the volume of pawnshop business is relatively low compared to the entire financial system, it is important to study this much neglected informal credit institution. Pawn broking in Singapore has not died out, as many of us had thought. It is actually a booming pursuit which sets record volumes of business each year. This upswing in pawn shop trade stems mainly from the change of consumers' preferences and the removal of much of the stigma associated with pawnshops. However, in face of modernization, this traditional business has also undergone tremendous changes. Regulation in the trade is essential due to the need for consumer protection and crime prevention. Moreover, regulatory guidelines should be reviewed regularly because of the potential for consumer abuse in this particular credit market. By simple statistical methods, pawn broking is found to be seasonal. Business, in general, follows a regular trend. Loans are low in the months of January, June and December, and highest in March while redemptions are highest in the months of January and December, the period before the Lunar New Year. This pattern of seasonality can be explained by the monthly income flow of typical Singaporeans and their superstitious beliefs. Statistically, pawn broking is also found to be cyclical: pawnshop credit is restricted in times of recession. Also, default rates on loans vary inversely with real gold prices. Furthermore, gold prices and income levels have also proven to be the more important determinants in influencing pawnshop loan volumes. Although the pawn broking industry in Singapore is expected to face serious man power problems in the near future. The overall outlook for the trade is favourable. However, it is predicted that its growth would be slower, as compared to the first half of the 1990s.