> Posted by Joshua Goldstein, Principal Director for Economic Citizenship & Disability Inclusion, CFI
Last August, I visited Wilmington, North Carolina to roast a friend on his sixtieth birthday with every intention of not thinking about financial inclusion or my work. Pure escapism was the only agenda and my complete itinerary. But on driving from the Wilmington Airport to his seaside home, my senses were assaulted by a series of gaudy, often neon-signed pawn shops named with pizazz like “Picasso Pawn” and “Flash Cash Jewelry and Pawn.” My professional curiosity had been piqued and it was inevitable that before reaching the beach paradise I would be taking an unexpected detour from my vacation.
You see, where I live in Boston, pawn shops are a relative rarity, so I had to take advantage of this opportunity. (And I have never watched any of the cable TV shows on pawn – which may put me in the minority.) The next day, I stopped at Pawn South on Oleander Avenue, and the perky staff guy was more than happy to talk of the role pawns played in his community. He told me some basic facts about this regulated industry:
- How much money you can borrow depends on the value of the possession you pawn, provided the shop and customer can agree on a value.
- The interest rate for an object pawned is 22 percent each month for 120 days.
- If repayment is not made by the end of the three months, the customer loses his pawned possession and any interest he has already paid is lost.
The good news, he assured me, when I looked a little sad, was that about 80 percent of the people who pawn objects make their payments and get their objects back after three months. This percentage is confirmed by the National Pawnbrokers Association.
The objects in Pawn South included jewelry, electronics, tools like electric saws and drills, and a big display case of guns and weapons. In fact, when I was there a gentleman from South Carolina wanted to buy a military style automatic rifle but was rebuffed because he was from out of state—which was a relief to me based on the fear this man induced. I should add that a good percentage of these objects were actually bought directly by the shop and were not pawned items. The store also made direct cash loans.
At one point I asked my friend behind the counter why pawn shops were so numerous in Wilmington. He said with pride that pawns “were the poor man’s bank.” Most of his customers were pawning items because they needed “quick cash” and had nowhere else to turn because the banks wanted to have nothing to do with his typical customer, whose credit ratings were in the tank. From what I understood, the demand for pawn shops was pretty inelastic in good economic times and bad. Who doesn’t end up in an emergency that demands an immediate infusion of cash from time to time? Advertisements for Pawn South on North Carolina TV feature a beloved everyman, called “Joe Pawner.”
To confirm my novice understanding of the world of pawn, I thought it behooved me to leave the beach once more and visit Picasso Pawn. A newly made Wilmington friend had charged me with searching for a stolen surfboard that he hoped might turn up in a pawn shop—though fenced goods are not part of the value propositions of the pawns I went to. They were legitimate businesses that were careful to know their customers, get their IDs, and even fingerprint them.
Even now, I have to say that my instinct is to take what I saw at face-value, and the truth is I rather enjoyed the pawn shop culture I saw. I understand why people turn to them. They get the cash infusion they need and can get nowhere else – as well as some good, nonjudgmental fellowship in a pleasantly neon environment that takes the edge off the desperation. Pawn South’s motto is “pay on it, pick it up, or forget about it – no hard feelings.” Perhaps naively, I believe many pawn shops try to live up to this.
Image credit: Storeyland
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November 18, 2014 at 1:40 pm
John Gitau
So, Josh, mentally drained by financial inclusion, you decided to pawn your heart at your buddy’s place in Wilmington, yeah? Having entered a pawning vibration, it is not difficult to understand why pawn shops got into your radar-selective exposure remember? ha!
Here is the most important statement in the whole post “- as well as some good, non judgmental fellowship in a pleasantly neon environment that takes the edge off the desperation”. It reminds me of how spectacles are worn with intellectual dignity while in truth, they represent eye defects. Apparently, the poor, ever faced with pecuniary indignity can do with a bit of de-odourization of borrowing facets.
In my country ,Kenya, pawn shops are proudly referred to as shylock shops. Imagine the oxy-moronic irony! In fact, pawning items with a shylock is considered smart leveraging and the business has grown to be associated with discounting. I would estimate that perhaps only 30% of those who pawn their items go back to redeem them. This has created a secondary market for the unredeemed items that serve the next tier of the poor. The market is further facilitated by the trend in electronic gadgets that need consistent upgrading. The industry remains unregulated, with the standard interest rate being 30% per month, with 60 days as the average longest duration after which items are sold without recourse. Interestingly, most shylocks structure the pawning agreements as sale -and-buy- back or hire purchase. They also thrive because there is no law against money lending ( as the Central Bank only regulates those it has licensed leaving the rest of the territory as a free for all as long as they don’t receive deposits from the public). Shylocks are tight on documents as they already know that the main disputes would be around premature liquidation of pawned items.
Lucky you Josh, that you were able to redeem yourself and are now back to Boston. Most people get sold off to the next tier! Pawning is pawning, isn’t it?
November 21, 2014 at 5:51 pm
Joshua Goldstein
Dear John,
Forgive the delay in responding to your thoughtful comments. I just returned from Nigeria and Uganda where I can assure you that I wasn’t pawning and fortunately wasn’t pawned. Fascinating to learn about the Kenyan “shylock” shops. Terrible that they are not regulated at all. That only 30% of people who pawn redeem their object is quite shocking. My sometime tongue in cheek post was not meant in anyway to minimize the harm that pawning can do. Just to acquaint the reader with a reality that I certainly was not familiar with. I would add that in a wealthy country like the United States spiritual poverty is as worrisome as pocketbook poverty. I am quite sure that none of the people I met in North Carolina pawn shops are living on one or two dollars a day.
It would be great if you could write a blog about the Kenyan “shylock” shops– and I urge readers in other countries to describe what pawn shops are like where they live.
November 22, 2014 at 3:23 am
John Gitau
Josh, It is hard to sympathize with the poor who pawn their items without condemning the pawn shops owners or shylocks as exploitative. Better to see the whole business as a window for quick liquidity at a mutually agreed price. Therefore, acceptance and change of attitude towards it is welcome. That is why your comment of “taking of the edge off the desperation” is exciting.
Pawning is a stage or season in a poor person’s life-cycle. The mind that acquired the items being pawned is the same mind that will replace the item when the liquidity problem is sorted-not unless we are saying pawning is the end of life for a poor person.
Also, there is need to examine the purpose of the liquidity from pawning. The pain of losing a precious item is compensated by the joy of an accomplishment, for example, pawning an item to get school fees for a child joining high school. I grew up in poverty and pawning household items was normal especially at school opening times. But that didn’t mean my parents couldn’t replace the same things later when financial pressure subsided. I can’t remember any redemption of pawned items. And that didn’t stop us six children getting proper education.
Pawn shops, I suppose, are the last resorts for its customers and both owners and their customers know that. To that extent, it is a willing buyer willing seller marketplace. We can’t start evaluating the circumstances as they are many and varied. Indeed, it doesn’t make sense if you enjoy the comfort of a seat in the house while a child has been chased away from school. You will be ridiculed by neighbors. Also, if they visit you and find no seats in the house and you explain you pawned them to pay school fees, they will applaud you because they also do the same and with numbers, there is consolation and acceptance.
It is normal for those with more money to sympathize with those with less. They even recommend solutions such as government interventions. I am wondering, short of governments providing shylocks with cheaper money to on-lend, cramping them down on interest rates will push them underground or make them shut down this quick liquidity source. Not unless the government comes up with better alternative financial services for that segment of the population, that kind of advocacy is futile. Isn’t poverty evidence of poor distribution of resources by governments among its population? Pawning as a homegrown solution among the poor should be left undisturbed. The business is a micro market economy type which has been self regulating itself well for centuries.
Josh, my voodoo economics tells me that a country with majority in its population heavily in debt can’t be categorized as wealthy. It doesn’t matter what per capital income figure is. It doesn’t help when so much wealth is in a few hands. US is not an exception. Wages to mortgage to food with nothing left to preserve isn’t wealthy living, or is it?
Next time you come such close to Kenya, Josh, do pop in for a cup of tea. I don’t think Uganda deserves you more than Kenya, or did we inadvertently upset you at one point and we are now getting punished with a skip?
November 25, 2014 at 4:49 pm
Joshua Goldstein
John, great, thoughtful comments. Helped me better understand your position–and the role pawn shops play in the life of the Kenyan poor—in a positive way.
I would love to visit Kenya next time. Keep that cup of tea warm– it may be soon. Best always, Josh
August 5, 2015 at 5:52 am
Pauline White
Josh, Pawn shops are always a help to poor people. Its not always easy for poor people to fulfill their dreams but the pawn shops help them a lot in these. Even though they have to sacrifice their precious belonging but their no words to describe the joy of accomplishment they feel when they get their things done.