Pawnshops Seen in New Light

In this review the author states that while pawning of assets for money is associated with desperation and exploitation, it is also a useful method of micro lending. Some of the advantages of pawning are:

• It charges interest at lower than those of the other informal sources;
• It allows liquidating assets which are unproductive otherwise and using them for productive investments;
• It has minimal transaction costs;
• Credit appraisal is limited to assessing the value of the pawned asset.

The author observes that pawnshops add to the diversity of the microfinance landscape and enable clients to convert their non financial assets quickly into cash for short periods.