Malaysia’s pawnbrokers in expansion mode with rising demand for quick cash

[KUALA LUMPUR] Malaysia’s pawnbroking industry – already red-hot as more people look for short-term financing – was in the regional spotlight last week when ValueMax’s Malaysian associated companies applied for a listing on Bursa Malaysia’s main market.

The first mainboard-listed pawnbroker on the Singapore Exchange is doing so via Well Chip, the holding company and proposed listco for ValueMax’s Malaysian associates.

The latest numbers illustrate why Malaysia’s pawnbroking industry has plenty of appeal, both at home and abroad.

The industry expanded at a compound annual growth rate (CAGR) of 5.2 per cent to RM10.7 billion (S$3.08 billion) in 2022, from RM8.3 billion in 2017, according to market research by Providence Strategic Partners.

The industry is expected to grow at a CAGR of 5.9 per cent between 2022 and 2024 to reach RM12 billion in 2024.

In April last year, Pappajack became the first pawnshop operator in Malaysia to go public on the ACE market of Bursa Malaysia.

The company, established in 2014, has 32 outlets in Malaysia. Lim Boon Hua, the managing director and chief executive officer of Pappajack Holdings, said the plan is to grow the network to 40 outlets by the end of 2023 or the first quarter of next year.

“Pawn shops were not so common 12 years ago when I began my career as a pawnbroker,” he said. “The industry grows in tandem with the economy. When the economy is expanding and people are more willing to spend, the demand for micro-loans increases.”

He said the majority of his customers today are low to middle-income wage earners taking home below RM5,000 a month. Many small business owners are also turning to pawn shops when they need cash urgently, he said.

In September this year, pawnbroker Evergreen Max Cash Capital (EMCC) made its debut on the ACE Market with plans to grow its market share to 10 per cent.

The company, established in 2021, raised RM64.2 million from the initial public offering, with about a third of the proceeds earmarked for new outlets. It currently operates 22 “Pajaking” pawnshops in Malaysia.

“The disbursement of quick loans and low interest rates are the main reasons that attract customers to pawn shops,” said EMCC executive director Low Kai Loon. “With valuable collateral such as gold, gold jewellery and branded watches, we can disburse the small loans within 10 minutes.”

Pawnshop boom

According to official data, the number of conventional pawn shops in Malaysia stood at 789 outlets as at September last year, from 516 outlets in 2017. In the market, there are another 700 Ar Rahnu, or Islamic pawnbroking service providers, that follow syariah principles.

Other than pawnbrokers, Bursa-listed jewellery design and manufacturer Tomei Consolidated joined the bandwagon by acquiring pawnbroking company Pajak Gadai JP in May this year for RM3.8 million.

Five of Tomei’s subsidiaries have already obtained a pawnbroker licence as at September this year to offer an online moneylending service. Tomei said the new venture will complement its existing jewellery business.

Highly regulated industry

Being the world’s second oldest profession, the pawnbroking industry has long been negatively portrayed as one that takes advantage of the poor. Pawnbrokers whom BT spoke to, however, said that such a mindset is no longer applicable in today’s business environment.

CSM Pawn Shop director Mark Chan said the pawnbroking industry is highly regulated by the authorities and is very competitive.

“This makes the process of valuation much more transparent, and consumers have a greater level of confidence when they get small loans from pawn shops,” he said.

In Malaysia, gold jewellery and watches are the most popular and widely accepted pledges by pawn shops. Some operators also accept branded luxury bags.

For gold jewellery, the valuation given by pawn shops is typically about 20 per cent to 30 per cent below the price of gold of the day. Watches are usually given a discount of up to 50 per cent of current market prices.

In Malaysia, 90 per cent of pawnbrokers’ revenue comes from the interest collected from the loans, while the rest is from the sale of unredeemed pledges.

According to Malaysia’s Pawnbrokers Act 1972, pawnbrokers are allowed to provide a maximum loan amount of RM10,000 for each pawn ticket, backed by one or more pledged items.

They can charge a maximum monthly interest rate of 2 per cent on the pawn loan amount, over a maximum period of six months.

Upon the expiry date, customers can choose to fully redeem their pledges or renew the pawn loan with a new validity period of up to six months.

For unredeemed pledges, pawnbrokers will dispose of it through the auction market to the retailers of pre-owned collectibles or jewellery shops.

Demand from unbanked consumers

Pappajack’s Lim said the pawnbroking industry remains relevant as there is still a large group of unbanked and underbanked consumers that need the service.

Official data showed that the unbanked population in Malaysia stood at 7 per cent (or around 2.3 million people) in 2021.

Without any proof of income and a credit score rating, unbanked consumers tend to turn to pawnshops for short-term financing services, said Lim.

Many pawnbrokers in Malaysia are trying to outdo one another to attract customers by offering lower interest rates. Some even go the extra mile by providing on-call pawnbroking services or going online to promote their brand.

EMCC’s Low said the company’s pre-owned gold jewellery retail business is doing well on its social media platform, and it has even ventured into TikTok Live to attract more younger consumers.

“The demand (of buying online) is rising, younger generations don’t mind buying pre-owned jewellery as they see it as future investments (for collateralised microfinance),” he said.