Tuesday, December 7, 2021

Inside the topsy-turvy world of local pawnshops

The easily guessed culprit of the is the COVID-19 pandemic which has made a hit not just on the local economy but has also brought up a global recession. While Covid-19 has had a financial impact on many Botswana families living paycheck to paycheck, it appears that people are not necessarily looking to sell their personal items – atleast as yet. 

The assumption has been that during a period of economic uncertainty like now, the business environment will be favorable to micro-lenders like pawnshops. Pawnshop brokers, atleast those in the greater Gaborone areas reports a contrary feedback.

Pula and Thobela Pawnshops – both located in Tlokweng village along the Zeerust road are amongst those that have no single answer of what is going on.

“We continue to experience a drop in the demand for our services since the Covid 19 pandemic started, even now when we are fully operational we are still experiencing low sales. This is mainly because our target market, being small businesses was equally and harshly hit”, says David Mmakgotso – a store manager at Pula pawnshop.

Mmakgotso’s experience is shared across the industry. His business and that of his competitors lend people money and typically give them 30 days to come back, repay the loan and retrieve their items.

Contrary to misconceptions in the society, Thobela Pawnshop Managing Director – Kgomotso Nakedi shares that their businesses do not exist to extort people off their belongings.

“We make money when people are paying back the money loaned out in place of their properties. When Covid pandemic came about people had already pawned their vehicles. So most of them failed to payback their loans which resulted in us recovering our money by selling their cars after agreeing with the customers,” Nakedi said.

The regulator of the pawnshop businesses in Botswana, the Non-Banking Financial Institutions Regulatory Authority (NBFIRA) says the business of pawning is not a new phenomenon but has been in practice for centuries.

“The history of pawnshop business in Botswana, unfortunately, has not been extensively documented but it is a common business practice that has been in existence for several years”, reads part of a research report compiled by NBFIRA and published recently.

Opposite of busy…..

Given measures put in place by the government to curb the spread of Covid 19 in early 2020 and for most part of that year, pawn brokers such as Thobela and Pula experienced less traffic in their buildings. At some point the business were totally shut as the government imposed a total national lockdown with only a few businesses excluding pawn shops declared as ‘essential’. This means for the whole of 2020 Pula and Thobela pawnshops together with their competitors across the country experienced a significant decline in demand for their services.

“When most people assume that pawnshops are doing well during these times, it is the opposite because people hardly get loans in such situations when they do not know if they will still be having jobs post Covid to be able to repay them”, adds Mmakgotso.

While pawn brokers experienced less walk-in for quick cash, the business recorded a slight rise in demand for second hand household electronics. This could be because most people needed some form of entertainment during the national lockdown period which lasted over seven weeks.

Nakedi tells Sunday Standard that it is not easy to recover money under the Covid pandemic for Pawnshops as potential customers do not have money to spend in in the first place. Instead, Nakedi reveals that most customers sell below the price because they need to have money and as Pawnshops they do not always get their money back as the price would be pushed down when auctioning some of the pawned items.

Part of pawnshop enterprising entails provision of products such as vehicles, laptop, television, and gadgets by clients in return for quick cash. In the Botswana market vehicles remains the most pawned item as they attract a large sum of money compared to other movable property.

Nakedi recalls that before the Covid pandemic, Thobela did not encounter issues relating to payment of salaries, rent, and utilities.

“Now we always work to make sure we have something for salaries, utilities and as for rent our landlords have been very lenient as they have not given us any problems. Government support in the form of a subsidy was necessary however we felt it was too short for the three months period it took place. It should have been continued until end of State of Emergence”, says Nakedi.

As a way forward, Nakedi suggest that the Government should make an arrangement that will enable financial institutions to lend businesses such as Pawnshop money, as they are registered legitimate businesses. “We need Government and other stakeholders to change their perceptions toward Pawnshops as they help a lot of people with exclusive service.”

On the bright side and in a bid to adapt to changes brought to the industry and economy by the pandemic Pula pawnshop has introduced a WhatsApp valuation, where it does appraisal of its customer’s properties. Customers send pictures and details of their appliances or vehicle to get pawn value estimation and then visit the business premises once an agreement has been reached. This helps to reduce movement in and out of the business premises.

Thobela Pawnshop on the other end has introduced initiatives such as the ‘pawn and drive’ which allows customers to keep their vehicles for a period of two-months at an interest equivalent to one month. The Tlokweng based pawn brokers have also adjusted their payment plans.

A growing industry…..

Despite a shocking decline in business, available official figures shows that pawn brokering has over the recent times been increasing at a diminishing rate.

The most recent NBFIRA research report shows that exempted pawnshops in Botswana increased from 13 to 87 between the years 2014 and 2020. This reflects a six fold (615%) growth with the most significant increases noted in 2015 and 2016 as the numbers grew by 14 and 30, respectively.

By the end of 2020, there were 93 exempted pawnshops in the country with most of them concentrated in urban and peri-urban areas. A further geographical location breakdown shows that 56 percent of the pawnshops are in Gaborone while 13 percent are in Francistown.

A further analysis of the NBFIRA data with focus on financial performance of the pawnshops business notably pegs the loan book value at P14.69 million at as December 2019. The 2019 loan book value reflected is for only 15 pawnshops businesses which had submitted data to the industry regulator for that reporting period. NBFIRA says based on the 2019 financial performance of the 15 unnamed pawn brokers, the total industry loan book value could be higher as more data is yet to be collected.

The financial performance of pawnshops is measured by the loan book values (accounts receivables), that is; the total of all outstanding loans in the company books at the end of a given reporting period.

The NBFIRA Act, 2016 defines a pawnshop as “a person licensed to engage in the business of lending money on personal property that is physically delivered to him or her as a security for loan transaction or lending money upon goods, wares or merchandise pledged, stored or deposited as security or engages in the business of purchasing tangible personal property to be left in pawn, on condition that it may be redeemed by the seller for a fixed price within a fixed period of time’’.

NBFIRA says the pawnshop business is a major contributor towards the financial inclusion agenda in Botswana as loans are granted to borrowers who can pledge collateral in the form of moveable property, in exchange for the loans.

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