Glistening barometer of informal economy
Sunday, 17 February 2008
John Aglionby
WHEN Mahmud Ibrahim needed some money quickly last December to expand his travel agency in east Jakarta he did not rush to his bank or one of the city's myriad money lenders. He went instead to the local branch of Pegadaian, the state company with a monopoly on pawnbroking.
"Pegadaian suits my needs perfectly," he says as he returns to repay his loan. "I got the money within an hour of walking in the door and handing over my gold."
Medium-sized customers such as Mr Mahmud pay 2.6 per cent interest per month and the conditions are flexible. "With moneylenders the loan period is fixed and they sell your goods straight away," he says. "But here you can extend."
Mr Mahmud is part of an increasing nationwide trend.
Deddy Kusdedi, Pegadaian's chief executive, estimates that 65 per cent of the Rp23,300bn ($2.5bn) in loans the company gave last year - to almost 23m people - were for business expansion as opposed to people with cash flow problems. The numbers represented a "significant" rise on just a few years ago.
"We're fast and easy," Mr Deddy says. "At the bank it can take weeks to get a loan but at Pegadaian we aim for between 15 minutes to an hour, unless it's a very big amount and then it might take a couple of days."
Pegadaian's outstanding loans at the end of September 2007 were Rp5,500bn compared with Rp31,000bn for outstanding microloans at Bank Rakyat Indonesia and Rp9,000bn for Bank Danamon. BRI and Danamon are the two largest lenders in the sector.
The company provides loans for 120 days at interest rates of 0.75 per cent per month for sums less than about $16, 2.6 per cent for sums up to $2,000 and 2.0 per cent for larger amounts.
These rates compare favourably with the banks. While most people repay within two months, everyone is given a 30-day interest-free period before their goods are auctioned off. Non-performing loans last year were less than 2.0 per cent.
Mr Deddy says the profile of the company's customers is also changing. "Pawning used to be identified with the middle-low classes," he says. "But the new trend is that 25 per cent of the money we loan goes to customers from the middle-up economic categories."
He believes that the company is a barometer for the nation's informal economy, a crucial sector that is often ignored in official statistics and analysis.
In the past decade gold and jewellery have increased from 30 per cent of goods pawned to 90 per cent, a sign of rising prosperity.
But the company's growth has slumped from 52 per cent to 22 per cent in the past two years.
Banks are muscling into Pegadaian's market. In addition to BRI and Danamon's micro products, HSBC offers small (Rp2m-Rp20m) uncollateralised loans at 69 specially designed branches. The global lender also sponsors badminton - Indonesia's national sport - in local communities.
The next step, according to one local banker, will be attempts to circumvent the ban on pawnbroking by offering the services through Sharia outlets.
"We are fully aware of Pegadaian's success and we're looking at ways to get into the sector," he says.
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Under syndication
arrangement with FE
WHEN Mahmud Ibrahim needed some money quickly last December to expand his travel agency in east Jakarta he did not rush to his bank or one of the city's myriad money lenders. He went instead to the local branch of Pegadaian, the state company with a monopoly on pawnbroking.
"Pegadaian suits my needs perfectly," he says as he returns to repay his loan. "I got the money within an hour of walking in the door and handing over my gold."
Medium-sized customers such as Mr Mahmud pay 2.6 per cent interest per month and the conditions are flexible. "With moneylenders the loan period is fixed and they sell your goods straight away," he says. "But here you can extend."
Mr Mahmud is part of an increasing nationwide trend.
Deddy Kusdedi, Pegadaian's chief executive, estimates that 65 per cent of the Rp23,300bn ($2.5bn) in loans the company gave last year - to almost 23m people - were for business expansion as opposed to people with cash flow problems. The numbers represented a "significant" rise on just a few years ago.
"We're fast and easy," Mr Deddy says. "At the bank it can take weeks to get a loan but at Pegadaian we aim for between 15 minutes to an hour, unless it's a very big amount and then it might take a couple of days."
Pegadaian's outstanding loans at the end of September 2007 were Rp5,500bn compared with Rp31,000bn for outstanding microloans at Bank Rakyat Indonesia and Rp9,000bn for Bank Danamon. BRI and Danamon are the two largest lenders in the sector.
The company provides loans for 120 days at interest rates of 0.75 per cent per month for sums less than about $16, 2.6 per cent for sums up to $2,000 and 2.0 per cent for larger amounts.
These rates compare favourably with the banks. While most people repay within two months, everyone is given a 30-day interest-free period before their goods are auctioned off. Non-performing loans last year were less than 2.0 per cent.
Mr Deddy says the profile of the company's customers is also changing. "Pawning used to be identified with the middle-low classes," he says. "But the new trend is that 25 per cent of the money we loan goes to customers from the middle-up economic categories."
He believes that the company is a barometer for the nation's informal economy, a crucial sector that is often ignored in official statistics and analysis.
In the past decade gold and jewellery have increased from 30 per cent of goods pawned to 90 per cent, a sign of rising prosperity.
But the company's growth has slumped from 52 per cent to 22 per cent in the past two years.
Banks are muscling into Pegadaian's market. In addition to BRI and Danamon's micro products, HSBC offers small (Rp2m-Rp20m) uncollateralised loans at 69 specially designed branches. The global lender also sponsors badminton - Indonesia's national sport - in local communities.
The next step, according to one local banker, will be attempts to circumvent the ban on pawnbroking by offering the services through Sharia outlets.
"We are fully aware of Pegadaian's success and we're looking at ways to get into the sector," he says.
..................................
Under syndication
arrangement with FE