Socio - economic factors that affect the success Of two selected pawnshops in metro manila: an assessment

A Thesis Proposal

Presented to
The Faculty of the Business Administration,
University of the East – Manila

In Partial Fulfillment for the Degree of Bachelor of Science in Business Administration Major in Financial Management

Submitted by
Juatco, Martian Lanz Gary A.
Mingaracal, Alvin M.
Pediengco, Alelie Krizza D.
Perey, Christine Mae R.

Summer
S.Y. 2014- 2015
CHAPTER I
The Problem and Its Background
Introduction
Pawnshops are in the business of lending money on the security of pledged goods left in pawn, or in the business of purchasing tangible personal property to be left in pawn on the condition that it may be redeemed or repurchased by the seller for a fixed price within a fixed period of time. A "pawn transaction" does not include the pledge to, or the purchase by, a pawnbroker of real or personal property from a customer followed by the sale or the leasing of that property back to the customer in the same or a related transaction (definitions.uslegal).

State and local laws regulate pawnshops. Pawnshops may be required to be licensed and regulations often require certain standards of record keeping and pawnshop fees charges to be followed. Regulations may require a minimum age of persons seeking to pawn items and may prevent the offering of insurance for pawned items. Pawnshops may also be required to consult police reports of stolen items to verify ownership of pawned items. State statutes vary, but typically, if your stolen property is found in a pawnshop you may decide to purchase it back or obtain a court order to recover the property.

In order to regulate the operation of pawnshops and all their existing laws, rules and regulations affecting their operations, the joint IMF-CBP Banking Survey Commission on the Philippines Financial System recommended to have a law governing all the pawnshops operating in the country. Presidential Decree No. 114 was promulgated to cover all the aspects on how to establish, and the operation of pawnshops. It also states that the Central Bank of the Philippines was charge with the task and responsibility of regulating the operation of pawnshops (ukessays).

The researchers chose two pawnshops which are Cebuana Lhuillier and M Lhuillier due to the fact that these pawnshops are included in the Top 10 pawnshops in the Philippines. Cebuana Lhuillier Pawnshop has been the leading pawnshop chain in the Philippines with over 1,500 branches across the country—from Aparri to Tawi-Tawi. For 25 years now, Cebuana has been true to its slogan “Walang Kapantay Magpahalaga” through the incomparable services that the company offers to its customers- this includes — pawning, local and international remittance, insurance, bills payment, e-load, collection, and foreign exchange (cebuanalhuillier). M Lhuiller Financial Services with its slogan “Tulay ng Pilipino” offered services which are quick cash loans, kwarta padala- money transfer, insurance plans, and money changer (mlhuillier).

In order to become successful the pawnshop business, pawnbrokers should have an overview on how the business will start and operate. There are also socio- economic factors that affect the business and need to be consider including interest rate, demographic factor, the financial environment, the financial education and legal regulation. But the most important factors in the success of the business was building trust and keeping cost near to zero (low interest).

Background of the Study

The economy is still down and a lot of the people need cash to pay their emergency expenses which are not part of their budget. Even the labor sector with regular jobs still needs to borrow money to meet both ends, satisfying the need for food, education of their children, household expenses, repairs and other maintenance which are not the in the list of the usual expenditures. In this situation, they run into pawnshop to pledge their personal items in return for cash.

This is the reason why the growth of pawnshop is compared to sprouting mushroom even at stiff competition with multi-national pawnshop companies, locally owned pawnshop can still perform well and got a sliced of the short term credit market.

Nowadays, many people see pawnshops as legitimate businesses that pay taxes and hire people, just like other respectable businesses. In the past, the poor reputation was earned, but pawnbrokers have done a good job dispelling those old scenarios and running clean, respectable operations. If the pawnshop owner does not run a respectable pawnshop, most likely he will not make to walk in the ladder of success of pawnshop industry.

Theoretical Framework In establishing business having good staff is what a pawnshop needed. Having a good marketing plan cannot be achieved without having persons who were capable in handling such position needed in financing business.

Pawnshop can be classified as a financing firm. There is a need of having a good relationship between the customer and the staff. An organization needs to develop a long-term, cost effective link with individual customers. The staff should possess some of the management skills for it’s the key for the firm’s success. It requires certain skills to carry out the various functions of management and that lead to a desired performance level. The performance achieves through the management is made up of two important dimensions: the effectiveness and the efficiency of the management. Aside from having a low interest for the pawned property, customers want to be treated well. People who live in and work in the community where a firm is located or doing business are often target of public relations effort.

Building trust and keeping cost near to zero (low interest) was the most important factors in the success of the business.

Management Skills

Technical skills – skills that reflect both an understanding of and a proficiency in a specialized field. For example, a manager may have technical skills in accounting, finance, and engineering.

Human skills - skills associated with a manager’s ability to work well with others, both as member of the group and as a leader who gets things through others. Managers with effective human skills are typically adept at communicating with others and motivating them to develop themselves and perform well in pursuit of organizational goals.

Conceptual skills – skills related to the ability to visualize the organization as a whole, discern interrelationships among organizational part, and understand how the organization fits into the wider context of the industry, community, and world. Conceptual skills, coupled with technical skills, human skills, and a knowledge base, are important ingredients in organizational performance.

To have and effective and efficient staff, it takes a combination of education and experience about the field or area’s it`s going to operate or manage. According to several informal surveys, managerial work in the future is particularly likely to be affected by an increasing need to manage change and innovation, the growing diversity of the work force, the burgeoning globalization of business, and the expanding concern with issues of quality and continuous improvement (ukessays).

Conceptual Framework

The input in this study contains owner’s contribution which includes marketing and management strategies. Reason why consumer patronize pawnshop also presented. As the process goes by, the strengths, weaknesses, opportunities, and threats (SWOT) analysis of the pawnshop business affect the business to be successful.

Statement of the Problem This research study will investigate on the socio-economic factors that affect the success of two selected pawnshops in Metro Manila. It will try to answer the following questions:

1. What are the strengths of the pawnshops?

2. What are the weaknesses of the pawnshops?

3. What are the opportunities of the pawnshops?

4. What are the threats that the business encounter?

5. What collateral does the pawnshop frequently received?

6. Is there a significant relationship between socio-economic factors and the success of the two selected pawnshop?

Assumption of the Study
1. This study assumes that some pawnbroker do not have enough knowledge in pawnshop business.
2. It also assumes that socio-economic factors help in the success of pawnshops.
Hypothesis
There is no significant relationship between socio-economic factors and the success of the two selected pawnshop.
Significance of the Study The study is conducted to know the socio-economic factors that affect the success of two selected pawnshops. This research paper will significantly benefit the following:
a. Pawnshop owners - this study will help the pawnshop owners to know what are the factors that make the business successful.
b. Entrepreneurs - this study will serve as a guide for entrepreneurs who wants to put up their own pawnshop business. It will also provide them knowledge on how their business be successful.
c. Loaners - this study will help loaners choose the most reliable pawnshops to prevent deception.
d. For future researchers - this study will serve as a baseline study for them.
Scope and Limitations The study focuses on the socio-economic factors that affect the success of two selected pawnshops which are Cebuana Lhuiller and M Lhuiller, and will be conducted within Metro Manila. It will not discuss the different services offered by each pawnshop.
Definition of Terms

Socio- Economic - is the combination of social and economic factor.

Pawnshop - is a store which offers loans in exchange of personal property as collateral.

Pledge - is a thing that is given as security for the payment of a debt.

Redeem - is to recover of (something) in exchange for payment.

Pawn Transaction - means any loan on the security of pledged goods on the condition that the pledged goods may be redeemed or repurchased by the pledgor or seller for a fixed price within a fixed period of time.

Pawnbroker - is an individual or business (pawnshop) who lends money in exchange of collateral.

CHAPTER 2
Review of Related Literature and Studies

Local Literature For many Filipinos, pawning jewelry at a neighborhood pawnshop has been the most common and quickest way to address an urgent need for relatively small amounts of cash. Compared with banks, pawnshops do not impose as many documentary requirements before releasing cash to customers. Moreover, the latter are more accessible, as they may be found even in remote areas where banks do not operate.
But despite the essential role these financial-service providers play, pawnshops still suffer from a bad reputation of preying on middle- and low-income Filipinos. The perception remains that pawnshops have a tendency to take advantage of people in need of cash through profiteering, and that many of them are fly-by-night operators that steal pawned jewelry. The Bangko Sentral ng Pilipinas, which has a division dedicated to regulating pawnshops, agrees that the pawnshop industry continues to suffer a stigma. It admits that it receives complaints involving pawnshops from time to time, usually in terms of operators that suddenly disappear without notifying customers about how they could get their pawned assets back. The BSP, however, says the proportion of erring pawnshops to the total number of industry players is miniscule. Ma. Belinda Caraan, officer-in-charge of the central bank’s integrated supervision department, says the number of pawnshop branches that have been the subject of complaints is equivalent to less than 5 percent of the industry’s network.
The pawnshop industry has a network of nearly 17,000, which include head offices and branches. Of the number, about 10,000 are engaged solely in the pawning business. The rest also operate auxiliary businesses, such as money changing, remittance facilitation, and bills payment facilitation. The BSP likewise holds training seminars for pawnshop operators and their staff. She says such training is conducted at least once a month by BSP personnel all over the country. The training covers a wide range of topics, including ethical business behaviors, valuation of assets, and detection of money-laundering activities, among others.
Training helps improve the manner of service delivery by pawnshops. (Michelle Remo 2012)

Because of their wide reach, pawnshops are identified by the BSP as entities for “financial inclusion.” The term refers to the act of making various financial services (such as payment facilitation, remittance facilitation, money changing, micro loans, and micro insurance) accessible even to people in far-flung areas. A study by the BSP released earlier this year said only two out of 10 Filipinos have bank accounts. The BSP said the information is an indication that banking services are still mostly concentrated in urban areas and are not reaching most Filipinos in rural communities. However, the pawnshops are capable of filling the gap. Unlike a bank, a pawnshop is much easier to put up. This is the reason they are much bigger in number compared with banks. While there are nearly 17,000 pawnshop head offices and branches in the country, there are only about 9,000 bank head offices and branches. The wider reach of pawnshops is largely credited to the ease in putting them up. Compared with a bank, a pawnshop requires less space, less staff, and needs much less capital (each pawnshop branch is required by the BSP to have a capitalization of just P100,000) There is a push for financial inclusion, and pawnshops are seen to help achieve the goal of having more Filipinos access financial services. Some of the auxiliary services that many pawnshops now offer include remittances facilitation, money changing, and bills payment facilitation. Moreover, a few also now serve as “cash in-cash out centers” and offer mobile banking services. (Ma. Belinda Caraan 2012) The Pawnshop owners can relate to the scenario of not knowing what might come across the pawnshop or how successful will be the operation for the day because it is not repet1t1ve day-in-day-out-job which is a unique business and a challenging one. But the hurdle of owning a pawnshop lies in its operation and services particularly how much the items presented as collateral for the short term loan worth. Knowledge of the value of products, particularly gold, jewelries and mobile phone units, is a must. Pawnbroker needs to know the retail price and current market price of every item on which they are loan. They also need to watch the trends where items changed and their values change as well. Although there are courses on pawnshop operations, much of what pawnshop owners learn are from experience at their respective stores and they never take it for granted because pawnshop business is a hard-nosed business. Checking the client’s credit history is not necessary because only the value of the item being pawned is considered as collateral. Unlike in availing loans in the banks and other financial institution, they required credit history, guarantor, etc which will not be the answer to grassroots, employees and wage earners emergency need of cash that day. But for Pawnshop it is the backbone of the business, easy processing and availment, easy cash which give them the image of popularity to the masses. In the moment they received their wage or the delayed salary, immediately they went to the pawnshop to redeem the said items and pays the interest due to them. If a borrower / pawner is unable to repay the short term loan plus the accrued interest in its expiration date, the pawnbroker forecloses on the collateral and outs it up for auction. (Pinghoi 2012)

Local Study
Foreign Literature

Pawn Shops may be seen either as the evil or the hero depending on the situation they are placed. It is true that they charge excessive interest rates that sometimes they do not show enough information for the customers to make appropriate decisions regarding their loans and that most of them are not exactly the most ethical business. But, not trying to advocate for them, we should realize that it is not their blame at all, considering that banks are not capable of reaching the whole population, which consumers do not have a minimal financial education and that external factors such as the gold’s value, the financial crisis, and the demographic situation and the lack of regulation are basically on their side. Giving loans to people that have never managed credit, or that needs pledge loans because of their failure to manage the credit they used to have, represents a huge risk for loaners, so a higher interest rate may be justified by this means. It is not a secret that after all, they mitigate their risk by selling the goods that are not recovered, so that contradicts their justification. But, being honest, if it was not for them, millions of people would not have a remote chance of getting any kind of credit or financial support. So, in my perception, instead of considering pawn shops the heroes or villains in the financial environment, we might see Pawn Shops as a perfect example of being in the right place, in the right moment.

We have analyzed earlier the factors that contribute on making Pawn Shops, one of the most attractive businesses in these years. It is not about judging whether pawn shops are good or not for our society, but about giving people the right sources to choose which the best option for them is. Some of the above mentioned factors do not depend on us, as the demographic factors, or the fact that we are facing one of the roughest financial crisis in the last decades; but providing instruments to teach the population about their personal financial management, or promoting the legal framework to protect the consumer, instead of the corporation, is our right and our obligation. (Edly Mortera, 2012)

Foreign Study

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Dependent Variable

A successful pawnshop business

Independent Variable

1. Owner’s Contribution: Marketing Strategies and Management Strategies

2. Consumer’s reason why they patronize pawnshop

Intervening Variable

Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis of Pawnshop Business