Although often labeled as a sunset industry, the century-old pawn shop business is far from fading.
There are 205 pawn shops in Hong Kong, up slightly over the past five years.
Despite competition from financial companies and banks, many of which offer cheaper rates, pawn shops are the lender of choice for people looking to borrow small amounts.
What exactly is their edge?
“Customers can get cash in a few minutes,” Chan Kai-ho, chairman and chief executive of Oi Wah Pawnshop Credit Holdings, told RTHK.
This quick access to cash is what sets pawn shops apart from other lenders if the borrower has collateral.
Who are the major borrowers?
Apparently, domestic helpers are some of the biggest customers.
Chan said they account for about 30 percent of his loan business.
Central, where domestic helpers like to hang out on their day off, is a good place to capture these clients.
Lately, however, Oi Wah has been channeling its focus to high net worth customers.
Transactions in this segment picked up noticeably last year.
So it looks like there is no lack of customers pawning their expensive watches and jewelry.
Pawn shops have two main income streams — interest on loans and profit from the sale of repossessed collateral.
Interest accounts for the bulk of their income.
“Only 10 percent of customers don’t redeem their stuff,” Chan said.
By law, pawn shops can charge no more than 3.5 percent interest per month. The maximum loan amount is HK$100,000 (US$12,900).
So how do they decide how much to lend?
Take a luxury watch, for instance.
Chan said the first thing he checks is whether it functions properly. Then, with the aid of a magnifying glass, he looks at other details such as the dial.
A luxury watch in good condition fetches about 70 percent of the price of a new one.
A pawn shop will lend about 50-60 percent of the value, Chan said.
While outsiders don’t see much of a future in this low-profile business, Chan is upbeat.
“There are a lot of opportunities,” he said.
Chan’s company has witnessed steady growth in the past five years.
In 2013, Oi Wah made its stock market debut and last year, the pawn business alone posted related revenue of HK$60 million.
Oi Wah is also involved in mortgage loans business.
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