The pawnshop industry is a business which is surrounded with a lot of stigma and perceived as a shady business. Many people do not have confidence in this industry as they believe it is a dodgy industry which is full of con men who are out to take money away from them. Pawn shops originated 3 000 years ago in China as a means for struggling peasants to get cash. The pawn brokers would hold items of value for a certain amount of time until the loan had been paid back together with the agreed interest charged. Pawn shops mainly specialise in buying and selling goods for cash ranging from diamonds, jewellery, gold and anything of value. Pawnshops also offer quick loans which are payable within 30 days.
In South Africa legislation has been amended in line with the constitution allowing companies to run legal pawn businesses in a regulated environment. The National Credit Act 34 of 2005 “NCA” regulates pawn shops and it is a requirement that pawnshops have a National Credit Regulation licence. The NCA states that pawn brokers that have at least 100 agreements in their books and with a total outstanding principal debt owed to them under pawn agreements exceeding R500 000 must register with the NCR. Failure to register may lead to a fine of R100 000, 00 or imprisonment of up to 10 years.
The NCA regulates the process in which pawnbrokers are supposed to operate so as to ensure that the consumer is protected. The second hand dealers and Pawn Brokers Act 1996 regulates the activities of pawn shops. This act requires that pawn brokers setting up a business must notify the police and must be registered with the board for second hand dealers and pawn brokers. The act further required that pawn brokers keep detailed records of all transactions and they must notify the police if they suspect that the goods have been stolen. Pawn brokering is the business of lending money at an interest on personal, movable property deposited with the lender until redeemed.
The economic climate in South Africa has seen a dramatic decline in consumer’s disposable income and the requirement for an institution that can not only bridge financial gaps but also provide a platform to purchase any item of value and provide instant cash to consumers in need. The pawnshop industry is booming in that consumers are able to access quick loans. The collateral handed in is used to determine the consumer’s affordability to repay the loan. These loans are accessible to everyone and they are not for a particular class. When applying for a loan there must be collateral which must be handed in to the credit provider so that in the event that the consumer fails to repay the loan the collateral is sold so as to get the money owed. This guarantees the credit provider that they will get their money back and this has resulted in the growth of pawn shops in the country. The pawn shop business is booming in South Africa as it is stated that there are more than 15 000 pawn shop pawnbrokers. This further showing that the business is profitable as more and more entrepreneurs are venturing into this business.
When starting a pawn shop it is advisable that you have sufficient capital. This will assist in that the capital that remains after the start-up costs will assist you to begin building a solid pawn loan base and also to operate with a negative cash flow and minimal profits for several months. Many consumers are attracted to pawn shops by the quick loans that they are able to access so having a strong loan financial base will assist. There is need to have sufficient knowledge and tools to test and identify precious metals and gem stones. Attending trainings and research will assist in ensuring that one has sufficient knowledge for this type of industry.
Market Research will need to be done so as to learn more about the industry you want to venture in. It is important to know the kind of market you want to attract and develop a marketing strategy that will attract the class of people you want and keep them coming back. When operating such a business it is important to know the regulations that regulate the business and ensure that you are compliant with the requirements of the regulations, for instance the National Credit Act 34 of 2005 and the Second hand dealers and Pawn Brokers Act of 1996.
Research can be done through researching on the internet or physically visiting different pawn shops and observing how they operate their business and this could assist in building business contacts. The research will clear up any misconceptions and irrational expectations you may have. It is important to prepare for hard times on the cash flow as all businesses go through hard times. Due to the type of business it is important to have maximum security so as to safeguard your goods and the lives of your employees.
AUTHOR: Noma Dube