Pawnshops Return to Fill Niche as Lenders to Small Businesses
Zhao Yidi, Zhang Dingmin and Irene Shen 30 December 2008
After months of rejection from Beijing banks, Wang Fei got the money to start a dried-fruit business by pledging his apartment to a pawnbroker.
The 25-year-old law-school graduate is following a path taken by a growing number of Chinese entrepreneurs and small businesses. Within days of offering his 969 sq ft flat as security, Wang got 400,000 yuan (HK$453,000) from Baoruitong Pawnshop, the nation’s biggest pawnbroker.
“We were desperate,” Mr. Wang said at his stall in Beijing’s Viva shopping mall. “The banks said they need at least a month to give us the loan, but our business will vanish if it takes that long.”
Pawnshops, banned for more than three decades, from 1956 to 1987, are making a comeback as the government tries to ease the credit crunch that is strangling small businesses. Baoruitong’s loans have risen by more than 70 per cent per year since 1997, said Xu Yunpeng, manager of the firm’s property department.
In 1997, Beijing had only four pawnshops. This year, Beijing and Shanghai authorised a record 94 new outlets for 2009 in an effort to channel funds to the entrepreneurs who drove the nation’s biggest economic boom, according to the Beijing Pawn Trade Association and Shanghai Pawn Trade Association.
In Beijing, home to 336,684 private companies, lending by pawnshops increased by 71 per cent, to 9 billion yuan, in the first nine months from a year earlier, according to the Beijing association. The Ministry of Commerce in Beijing issued 46 new pawnshop licences for 2009, adding to 115 existing outlets.
“Pawnshops are filling in the financing gap by lending to small and medium-sized companies, and there is still room to expand that function,” said Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences in Beijing.
At Baoruitong, 90 per cent of clients are companies, said Mr. Xu. The shop accepts everything from jewellery to property and raw materials as collateral and can approve loans within minutes, he said.
“Bank loans extended to small and medium-sized enterprises in the first three-quarters this year have dropped from the same period a year earlier,” said Jia Kang, head of the Institute of Fiscal Science at the Ministry of Finance. He declined to give figures.
“Speed and simple procedure is our lifeblood,” Mr. Xu said at the company’s two-floor Beijing headquarters. “Our industry serves people in need. Clients can get cash in minutes if they bring in diamonds, jade, and watches.” For cars and property, “we aim to hand clients their cash within 12 hours”.
In the lobby, a security guard oversees rows of diamond rings, jade and Rolex watches. In the parking lot, two more guards watch over at least 50 cars, including a blue Maserati and a silver Ferrari.
Baoruitong charges as much as 3.2 per cent per month for loans backed by property and 4.7 per cent for those with movable assets such as cars as collateral. The rates are approved by the Ministry of Commerce. Chinese banks offer loans to small start-ups at around 0.75 per cent per month.
Banks, rattled by the global credit crunch and seeking to avoid a repeat of the bad-loan crisis that engulfed them early this decade, have become more cautious in handing out new loans.
About 67,000 smaller enterprises filed for bankruptcy in China in the first half of the year, according to government figures.
Pawnbrokers have become so important for entrepreneurs that Bank of Communications, China’s fifth-largest bank by assets, has teamed up with Beijing Huaxia Pawnshop Company to target small and medium-sized businesses. Under their joint project, “Bank-Pawn-Expressway”, a borrower can get a quick loan from Huaxia to meet urgent funding needs and then repay the pawnshop once it gets a cheaper bank loan, which the pawnshop guarantees.
“We work 24 hours a day and we can burn the midnight oil to do due diligence, which banks won’t,” Huaxia chairman Yang Yong said. “And we can deliver to your home.”
Still, even pawnbrokers are feeling the effects of China’s slowing growth.
Huaxia has scaled down the percentage of loans on collateral to 60-65 per cent for property, from 70 per cent, and no more than 85 per cent for cars, from 90 per cent.
Companies like Huaxia are among those that can get bank financing. The Bank of Communications granted a 300 million yuan credit line for the Bank-Pawn-Expressway programme, which can double if needed, said Mr. Yang.
“We still have loans from China Construction Bank,” he said. “We’re not feeling we don’t have enough money to lend.”
For entrepreneur Mr. Wang and business partner Dong Huan, the pawnshop loan allowed them to buy their first batch of dried jujubes and raisins from Xinjiang province and pay rent on their 20 square metre booth.
“The interest rate they charge is high, but they are so fast and easy,” said Mr. Wang, who paid the debt in four months.
“If I ever need cash again, I will go to the pawnshops.”
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Pawnshops Return to Fill Niche as Lenders to Small Businesses
Zhao Yidi, Zhang Dingmin and Irene Shen
30 December 2008
After months of rejection from Beijing banks, Wang Fei got the money to start a dried-fruit business by pledging his apartment to a pawnbroker.
The 25-year-old law-school graduate is following a path taken by a growing number of Chinese entrepreneurs and small businesses. Within days of offering his 969 sq ft flat as security, Wang got 400,000 yuan (HK$453,000) from Baoruitong Pawnshop, the nation’s biggest pawnbroker.
“We were desperate,” Mr. Wang said at his stall in Beijing’s Viva shopping mall. “The banks said they need at least a month to give us the loan, but our business will vanish if it takes that long.”
Pawnshops, banned for more than three decades, from 1956 to 1987, are making a comeback as the government tries to ease the credit crunch that is strangling small businesses. Baoruitong’s loans have risen by more than 70 per cent per year since 1997, said Xu Yunpeng, manager of the firm’s property department.
In 1997, Beijing had only four pawnshops. This year, Beijing and Shanghai authorised a record 94 new outlets for 2009 in an effort to channel funds to the entrepreneurs who drove the nation’s biggest economic boom, according to the Beijing Pawn Trade Association and Shanghai Pawn Trade Association.
In Beijing, home to 336,684 private companies, lending by pawnshops increased by 71 per cent, to 9 billion yuan, in the first nine months from a year earlier, according to the Beijing association. The Ministry of Commerce in Beijing issued 46 new pawnshop licences for 2009, adding to 115 existing outlets.
“Pawnshops are filling in the financing gap by lending to small and medium-sized companies, and there is still room to expand that function,” said Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences in Beijing.
At Baoruitong, 90 per cent of clients are companies, said Mr. Xu. The shop accepts everything from jewellery to property and raw materials as collateral and can approve loans within minutes, he said.
“Bank loans extended to small and medium-sized enterprises in the first three-quarters this year have dropped from the same period a year earlier,” said Jia Kang, head of the Institute of Fiscal Science at the Ministry of Finance. He declined to give figures.
“Speed and simple procedure is our lifeblood,” Mr. Xu said at the company’s two-floor Beijing headquarters. “Our industry serves people in need. Clients can get cash in minutes if they bring in diamonds, jade, and watches.” For cars and property, “we aim to hand clients their cash within 12 hours”.
In the lobby, a security guard oversees rows of diamond rings, jade and Rolex watches. In the parking lot, two more guards watch over at least 50 cars, including a blue Maserati and a silver Ferrari.
Baoruitong charges as much as 3.2 per cent per month for loans backed by property and 4.7 per cent for those with movable assets such as cars as collateral. The rates are approved by the Ministry of Commerce. Chinese banks offer loans to small start-ups at around 0.75 per cent per month.
Banks, rattled by the global credit crunch and seeking to avoid a repeat of the bad-loan crisis that engulfed them early this decade, have become more cautious in handing out new loans.
About 67,000 smaller enterprises filed for bankruptcy in China in the first half of the year, according to government figures.
Pawnbrokers have become so important for entrepreneurs that Bank of Communications, China’s fifth-largest bank by assets, has teamed up with Beijing Huaxia Pawnshop Company to target small and medium-sized businesses. Under their joint project, “Bank-Pawn-Expressway”, a borrower can get a quick loan from Huaxia to meet urgent funding needs and then repay the pawnshop once it gets a cheaper bank loan, which the pawnshop guarantees.
“We work 24 hours a day and we can burn the midnight oil to do due diligence, which banks won’t,” Huaxia chairman Yang Yong said. “And we can deliver to your home.”
Still, even pawnbrokers are feeling the effects of China’s slowing growth.
Huaxia has scaled down the percentage of loans on collateral to 60-65 per cent for property, from 70 per cent, and no more than 85 per cent for cars, from 90 per cent.
Companies like Huaxia are among those that can get bank financing. The Bank of Communications granted a 300 million yuan credit line for the Bank-Pawn-Expressway programme, which can double if needed, said Mr. Yang.
“We still have loans from China Construction Bank,” he said. “We’re not feeling we don’t have enough money to lend.”
For entrepreneur Mr. Wang and business partner Dong Huan, the pawnshop loan allowed them to buy their first batch of dried jujubes and raisins from Xinjiang province and pay rent on their 20 square metre booth.
“The interest rate they charge is high, but they are so fast and easy,” said Mr. Wang, who paid the debt in four months.
“If I ever need cash again, I will go to the pawnshops.”
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