BY: CATHERINE SAW

In order to finance their Ramadan bazaar stalls, cash strapped traders have been pawning their gold ornaments and jewellery to the approximately 790 licensed pawnbroking service providers in the country.

This has witnessed a boom in business for pawnbrokers and the festive period has led to a rally in gold prices and there are some of those who have invested in gold to move into cash temporarily to take advantage of the situation.

Currently, spot gold price is trading at a historic high of US$2.233 a troy ounce which is an increase of 10 percent since the start of the year ensuring a strong financial year for pawnbroking companies if their lending is in correlation with the value of pledged items.

Pawnbrokers in the country, including those who are listed, like Pappajack Bhd and Evergreen Max Cash Capital Bhd adopt a business model that is fairly straightforward and so these companies are set to benefit.

The premise on which the pawnbroking business is run is simple. With pawnbrokers collateral backed micro loan rates capped at 2 percent per month, the incentive for them is basically to lend more to make more.

Normally, a customer can expect to receive 60 to 80 percent of the market value on their item as a loan, which usually runs for six months and the risk of default is low especially when the price of gold is high, say these pawnbrokers.

-THE MALAYSIA VOICE

** The views expressed on this opinion is of the writer and not the publisher