Brazil and its pawnshops

We in India are complaining about high interest rates? Here is Brazil for you – bank loans charge anywhere around 100% and credit cards charge more than 240%. The central bank there reports that 6.7% of personal bank loans and 26.3% of credit card accounts are in default.

People in Brazil, driven like us by the same wave of ‘consumerism’ wanting to buy more and more are today staring hard at expensive unpaid bills, slowing economy and mounting bank rates. But necessity often makes man do things which he usually does not do – in Brazil, high interest rates have forced people to get money from pawnshops. Yes, pawnshops have become big business there. These pawnshops allows them to pawn almost anything of value and charge rates which are much, much lower than those charged by banks.  Some Brazilians, even those solidly in the middle class, are using pawnshops, which are regulated at the national level, to pay off their credit cards, cover unexpected expenses or just get a cheaper line of credit.

These pawnshops are operated by a government-owned bank, Caixa Econômica Federal. You walk into any of the Caixa branch, apart from ATMs, savings account desk, teller, cashier, there is also a quiet corner where scales are kept, to weigh and test gold, silver, diamond and even luxury watches. After inspection, based on the value, 85% of that value is given as loan- no questions asked, neither about employment, paychecks, credit history; nothing! One has to give just one’s name, address and tax ID number, akin to our Pan Card. Little wonder that they are doing booming business – they have nothing to lose as they hold the valuables.

When nondescript small caps start hitting new highs and panwallahs start giving ‘tips’ you know the bull run is coming to an end. Similarly, growth of pawnshops is ominous for the country as it a pointer to the fact that maybe consumer debt might be reaching the absolute limit.