Pawnshops see upside in tough times

Russian pawnshops increased lending by 18% last year amid the on-going financial crisis. But it's likely to fall back as banking gets stronger.

When banks cut lending and times are hard, people are forced to find alternative ways of raising money. 2009 was a boom year for pawnshops in Russia, with the number of outlets rising an unprecedented 40 percent across the country.

The downturn also altered the idea of a pawnshop as an institution for the poor.

Pawnshops are particularly popular during times of crisis – people need money urgently and without any questions asked – even if they're selling a Rolex watch or Tiffany diamonds.

Pawnshop 36, an elite pawnshop, opened six months ago. There’s no window with a security grill and no sign of desperate people down to their last kopek. Clients are offered tea or coffee and an understanding smile. Owner Anton Zinovyev, says it’s a pawnshop with a difference.

“We aim at the top segment, i.e. businessmen who for some reason have to borrow some money in a hurry, when banks can't give loans quickly at the moment.”

But as confidence returns to the banking sector, the sharp growth in pawnshops is coming to halt. United Lombard General Director, Dmitry Terentyev, says the extra 40% of market players that showed up in difficult times, will quit the game over the next 2-3 years.

“It seems pawnshops live a very easy life – once you get the pawn you can lend the money. Actually it's a very hard and time-consuming business. The repayment time for an average pawnshop is about seven years – no bank can lend for such a long period.”

The recent initiative by the Stolichny pawnshop chain to lower interest rates to European levels of 5% from the recent 15% could also change the alternative lending market. As some players noted, it means Russian pawnshops are becoming civilized.