Hong Kong pawnbroker sees growth in ancient industry
Tucked away on a side street among Hong Kong's shimmering skyscrapers, Tak Wah Pawnshop appears out of step with this modern financial centre.
A customer, shielded by a privacy screen, reaches up to an elevated counter and hands over a gold ring in exchange for 200 Hong Kong dollars ($25; £17).
Hanging from a security grille is a lunar calendar, which the pawnbroker uses to calculate the loan term and interest.
"It's the first time I've been here," says Elsie Obleanda, a 35-year-old Filipino maid, as she pockets the cash.
"I need to send some extra money home for my kid's graduation."
It is hard to imagine profiting from smaller sums such as these, but investors see growth in this ancient form of financing, which remains deeply embedded in the fabric of Hong Kong and many other Asian economies.
Oi Wah Pawnshop Credit Holdings, which owns Tak Wah and 11 other pawnbrokers scattered throughout the city, went public on the Hong Kong stock exchange on Tuesday.
Demand among investors for its HK$98m ($12.6m; £8.4m) share sale was more than 100 times greater than the shares on offer and the stock rose 34% on its market debut.
Edward Chan, the company's boss and son of the founder, says he wants to expand and modernise his family's time-honoured trade.
Bottom of the heap
An industry report commissioned by Oi Wah before its market debut forecast that Hong Kong's pawnbroking industry was expected to expand by 8% a year from 2012 to 2016.
It is steady rather than spectacular growth, but the loans made are very profitable.
The company enjoys a net interest margin, which measures the profitability of lending, of 42%.
By comparison, the same yardstick is usually in the single digits for banks.
Demand is driven by workers or consumers at the lower end of the pay or employment scale - domestic helpers such as Ms Obleanda account for a quarter of all customers.
They are joined by low earners, the elderly, and young people who pawn their smartphones and tablets when they have a cash shortfall.
Hong Kong is one of the world's richest cities but the gap between rich and poor is widening, underpinning business for the city's 200 or so pawnshops.
A quarter of the city's working population earns less than HK$8,000 a month.
"When hard times come, our current customer might have problems paying for the loans, but at the same time it creates new demand," says Mr Chan.
Another growing segment is visitors from mainland China, who face caps on the amount of cash they can bring to Hong Kong.
Others need cash for betting or gambling - Wednesdays and Sundays when the city's horse race meetings take place are said by some pawnbrokers to be the busiest days.
Like elsewhere in the world, using pawnshops carries a stigma but Mr Chan says this can also prove to be a silver lining, not least in helping firms keep a firm grip on costs.
"We don't need to be in prime locations where the rent will be ridiculous," he explains.
The company plans to use some of the proceeds from its share sale to expand into mortgage lending.
It is a potentially lucrative area because money lenders are not subject to the limits placed on banks by local authorities keen to rein in a booming property market.
Other plans include a more discreet service for customers with more valuable items to pawn.
Oi Wah is the first pawnshop chain to float in Hong Kong but not in Asia, where the industry has a history going back thousands of years.
Singapore pawnbrokers Mega-Cash listed on the city's stock exchange last year and in Indonesia state-run pawnshop operator PT Pegadaian is reported to have 18 million customers.
Pawnbroking also thrives in the gambling enclave of Macau, where many punters buy expensive items from pawnshops using debit cards and then pawn them to get around the limits put on the amount of money they can take out of China.
And in China, where pawnshops were banned from 1949 until the 1980s, the industry has found a niche offering bridging loans to small business owners, a significant market that is often overlooked by a banking system that favours state companies.
One recent report spoke of pawnshops in the eastern city of Wenzhou having to rent parking space for the luxury vehicles that had been pawned.
New and old
Traditionally, Hong Kong's pawnshops, which were legalised in 1926, occupied the city's fast-disappearing "tong lau" or shophouses.
They were easily identifiable by an ancient symbol of a stylised bat hovering over a coin - Chinese word play for good fortune.
The terraced upper floors provided living quarters for staff and storage space for the quilts, televisions, leather jackets and electric fans that were commonly pawned by those struggling to make ends meet.
These days, the signs are lit up in neon and safes are filled with gold, jewellery, watches and gadgets such as iPads and MacBooks.
Still bound by traditional practices, Mr Chan says it has been challenging to standardise and systemise the business for its stock market listing.
Loans are usually extended for a period of four lunar months, with a maximum interest rate of 3.5% a month.
There can be 13 lunar months in a standard year so shifting the accounts to the Western calendar to satisfy regulators has been "troublesome", says Mr Chan.
Mr Chan is also trying to bring shop fronts up to date with bright orange and white company colours, shedding some traditional features such as green doors to reflect its new found status as a listed chain and in an attempt to dispel its backstreet aura.
The unique layout of Hong Kong pawnshops, with their impersonal high counter and "shy screen", is also at odds with the image of a 21st century financial service that Mr Chan would like to project.
"Physically, it's for security and psychologically… people are coming to ask you for help, so you have to stand at a higher position," says Mr Chan.
"But nowadays, this is not our philosophy. We try and fulfil our customers' needs."