WONG:
As the global economic downturn continues, many small businesses in China are looking for financing. And when banks won't give them credit, they have been going to pawn shops. Here's more.
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WONG: As the global economic downturn continues, many small businesses in China are looking for financing. And when banks won't give them credit, they have been going to pawn shops. Here's more.
STORY: With China's economy experiencing its slowest growth rate in over a decade, pawn shops in China are doing a roaring business.
Pawn shops have been banned for two decades. But now people see hocking goods as a way to bypass lending-cautious banks.
[Wang Fuming, Chairman, Shanghai Oriental Pawn Shop]: "As more and more pawn shops in Shanghai offer short-term lending for small businesses, the pawn industry is able to showcase some of its true functionality."
Pawn shops are now taking villas, cars, and art pieces as collateral. Chinese shops, unlike their foreign counterparts, are able to take in these big-ticket items, making them more geared towards a business clientele.
Pawn shops charge clients a monthly rate of about 3.2 percent--much higher than the 0.44 percent on bank loans.
But cash-strapped borrowers are attracted by their efficiency and convenience of short-term loans.
A pawn shop can assess the value of property offered as collateral in as little as two hours, and in about one week, money is put in the hands of a qualified client.
Processing a small business loan takes at least one month at a bank.
But loan defaults are on the rise for both pawn shops and banks.
Pawn shop operators are taking measures to ward off potential risks--like not taking stocks as collateral and tightened scrutiny of its applicants.
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