In the Western world, pawn shops have a bit of a bad rep. Seen as destinations of last resort, they fall somewhere on the “don’t get caught there” spectrum between colonic spas and Pokestops.
In the Philippines, though, pawnshops are as common as ATMs. About 90% of Philippine households get by on $10 a day or less, and the absence of traditional credit or banking options exacerbates locals’ need for emergency loans. While the country’s 7,000 islands comprise a land area smaller than California, the Philippines is home to 18,500 pawnshops, and its central bank estimates that as many as three-quarters of Filipino adults patronized a pawnshop in 2012.
The first pawnshops emerged in China around 3,000 years ago. Peasants would hand over their belongings in exchange for short-term loans, and forfeit those belongings if they couldn’t pay the loan back by an agreed-upon deadline. With little else available to them, the poor would often use the clothes off their backs as collateral.
By the Middle Ages, the practice had made its way to Europe and become commonplace at both ends of the economic spectrum. Edward III and Henry V famously pawned their crown jewels to help finance their respective wars on France.
Over the centuries, the pawnshop business model hasn’t changed; but in the developing world, the industry has grown enormously. The Philippines now has one pawnshop for every 3,200 adults. For the same slice of the population, there are only about two registered physicians.
Filipinos’ in-person pawnbroking is pretty standard: Cash offers tend to be less than 50% of the collateral’s actual cost, and a monthly interest rate of 3% or higher is added to the outstanding balance. Pawnshops also tack on a service charge of up to 2%, and most expect about a quarter of their customers to never return.
But the internet is beginning to revolutionize the sector in Southeast Asia, five years after Colorado-based PawnGo helped pioneer online pawnbroking elsewhere. In February 2015, the Philippines saw the launch of Pawnhero, which allows users to receive an online quote for their items by uploading photos and answering a few questions. If the user accepts the quote offered, their item is retrieved by a courier, who gives them an empty debit card. Once Pawnhero has appraised the item in person, the debit card is topped up. It’s a safer option in a country where credit ratings are nonexistent and loan sharks are often the only venue for borrowing money.
Pawnhero is also expanding the universe of what can be pawned, turning its services and its website—Marketplace.ph, where the company sells off unclaimed goods—into a sort of bizarre thrift store. Currently available for purchase: a slew of designer bags, smartphones, and high-end cameras; but also a magnetometer, antique daggers, and a wood carving of the Last Supper.
“Most of the pawnshops [in the Philippines] only accept jewelry,” says Pawnhero founder David Margendorff. “But we accept much more: gadgets, musical instruments, handbags, you name it.”
With 50 employees, Pawnhero is looking to close a round of Series A financing later this year and is already eyeing expansion targets.
“Vietnam,” Margendorff says. “Ninety million people. Thirty thousand pawnshops.”