During the crisis, pawnshops have become the main source of fast money for some people - without the references and guarantors. Today, not only jewelry, but also furs, home appliances and even cars can be put as security. In 2009, on the backdrop of a sharp reduction in consumer lending by banks in the world, the demand increased for the services of pawnshops. Having the specific structure of security and high interest rates on loans, pawnshops prevent significant risks and increased lending amount compared with 2008.
The modern understanding of the word "lombard" is associated with some dark doorway, dark shops and silent gray-bearded old men, the last refuge for those who fell into a desperate situation and did not know where to catch money.
But it is refused that it is not so, and pawnshops are quite modern and even a thriving spheres of the European economy and in fact, many ordinary people use the services of pawnshops. Lombard is a specialized lending institution that issues short-term cash loans under security of personal assets of the borrower. Having valuable assets, any citizen who has attained the age of majority may lay it in a lombard, and instead, get a certain amount.
Loans secured by property were established for the first time in the 15th century in France by usurers from Lombardy. First municipal pawnshops appealed in the 16th century. In 17-18th centuries, the municipal pawnshops served as "agencies of social support for population" to obtain small loans to rescue the citizens from hunger or utter ruin, thereby protecting them from theft or other desperate acts.
In Azerbaijan, it seems, no one knows what amount turns in this business and even how many pawnshops exist in Azerbaijan. The search in the website of the Central Bank of Azerbaijan has not given any results for this search. The Financial Monitoring Service of the Central Bank of Azerbaijan, which is charged in monitoring this sphere, said that currently work is underway on reports of pawnshops. The national search site navigator.az returned 6 results. But this figure is not credible, since only in the capital it is possible to see some such objects.
Substantial increase in the amount of lombard loans to citizens occurred in late 2008 and in 2009, due to the development of the crisis and the relatively simple and accessible procedure for obtaining short-term loans.
Pawnshops are working on a simple scheme: you come, give your gold or other valuable commodities and get paid (in the amount that the things are estimated), and in addition, sign a contract. Rates total 5 to 20 percent per month. In case of borrower's failure to pay, the lender has the right to sell the security - every lombard has a shop.
Antiphase of banks
Dynamics of the lombard market is in antiphase with the bank: when banks reduce lending to citizens, pawnshops increase it, and vice versa. In the midst of crisis, people needed money in a short time and without references, so their interest in the services of pawnshops is understandable, but since mid 2009, the sharp growth stopped as the situation stabilized.
The main reason for the increasing number of customers of pawnshops are high interest rates on loans at banks. At the same time, security or sale of things at lombard allows to quickly get cash money. For example, in Moscow, there is a lombard, which gives loan for a minute. Things put on sale are increasingly expensive jewelry and watches. There's no need to fill in applications, bring reference from job like at banks. And most importantly - if you can not redeem pledged jewels, no-one will prosecute you.
Another reason for the growing popularity of pawnshops was the need to support the "pre-crisis" level of living in hard conditions in the labor market.
Nevertheless, pawnshops are not competitors to banks, the people who use their services, most of them are insolvent and can not rely on bank credit. Pawnshops themselves are still actively financed from the banks. The owner of one of the capital pawnshops, who asked to remain anonymous, said his object itself depends on borrowed funds, the rate of earlier loans was 18 percent per annum.
But competition exists in the market of pawnshops. Several banks have established affiliates in form of pawnshops and are considered major players in this market. Apart from being highly competitive, civilized pawnshops have to face the facts of misconduct of their colleagues.
Control over pawnshops
In Azerbaijan, the pawnshops are involved in reporting on combating money laundering. Thus, signing the decree on making amendments and additions to the presidential decrees in connection with the application of the law on amendments and changes to various laws with regards to the adoption of the law on combating legalization of money and other assets acquired by criminal means and the financing of terrorism, Azerbaijani President Ilham Aliyev determined the organizations authorized for the implementation of the law.
According to the decree, the supervision over the implementation of control on providing information on suspicious financial and other transactions and making the perpetrators answerable is entrusted on the Central Bank (for credit institutions and leasing services), the State Securities Committee (professional securities market participants, lottery organizations and investment funds), the Ministry of Finance (insurers and reinsurers, the operators of the market of precious stones and metals), Ministry of Communications and Information Technologies (postal operators, financial services), the Ministry of Justice (non-governmental organizations ) State Committee for Work with Religious Organizations (religious organization) and financial monitoring service under Central Bank (pawnshops, realtors). Financial Monitoring Service has direct authority to determine compliance and verification of transactions, subject to the law on combating money laundering.
It should be noted that the Financial Action Task Force (FATF) expects from Azerbaijan, which does not fully comply with its requirements, to strengthen legislation on combating money laundering and terrorist financing. In particular, FATF and MONEYVAL (a similar group of the Council of Europe) put the following demands: to properly criminalize money laundering and terrorist financing (Recommendation 1 and Special Recommendation II); to amend the relevant laws or regulations to address the deficiencies for due caution to clients (Recommendation 5); to establish and implement adequate procedures to identify and freeze terrorist assets (Special Recommendation III), as well as to ensure full and effective functioning Financial intelligence (recommendation 26).
Results
Still many has suspicious views about pawn-shops, while the rest world accepts it as a normal lending institute. So, pawn-shops act as an original "oxygen pillow" loan system: you lose time, collecting necessary documents for the bank to receive the loan, though it is enough to hold an ID in this case. For instance, the pawn shops in the US can issue money under the bail, while they themselves act as guarantees of bank loans.
Nevertheless, due to the global financial crisis, pawnshops gained much popularity and achieved active development. Banks, refusing to provide consumer loans, have lost some potential customers. Citizens who desperately need the money did not wait for retail lending market recovery and appealed for quick loan at pawnshops.