New draft law under consideration to regulate pawnbrokers must not allow them to compete unfairly on lending: lawyer.
Some large pawnshops are owned by rich and powerful figures.
ALAWYER for a mid-sized Cambodian bank has called for the government to put a cap on the amount pawnshops can lend and prevent them from taking property as collateral for loans.
Ros Monin, managing partner at Sewha-Cambodia Law Group, which represents Shinhan Khmer Bank, said that a draft prakas, or edict, on
regulating pawnshops could pave the way for them to compete with banks in the lending market if passed in its current form.
“Banks could lose their customers to these pawnbrokers because there are complicated procedures involved in borrowing money from banks,” he said.
“Pawnbrokers have quite quick and simple procedures so customers will not borrow from banks when they need money just for a short time.”
The Ministry of Finance prakas is currently before the private sector for feedback.
Ros Monin called on the government to limit the amount pawnshops can lend to US$100,000 and prevent pawnshops from taking fixed assets such as house and land titles for collateral.
“Some large pawnshops are owned by rich and powerful figures, so they have a lot of money to lend to customers,” he said. “If there are no limits to the maximum loan pawnshops can offer, they will offer large loans.”
Fellow lawyer Phon Panha, a member of the Bar Association of Cambodia, also said that a failure to put controls on pawnshop lending could affect the banking sector.
The draft prakas, which would be the first set of regulations governing pawnshops in Cambodia, sets a minimum capital requirement of 200 million riels (US$48,123) for pawnshops, caps monthly interest rates on loans at 5 percent and limits loan contracts to four months, with an option to renew.
Pawnshops must deposit 10 percent of the minimum capital requirements in a Finance Ministry account at the National Bank of Cambodia (NBC).
Mey Vann, director of the ministry’s Department of Industrial Finance, said the concerns would be taken into consideration and the prakas would be amended if it was discovered pawnshops were competing with banks.
However, he said the scenario was unlikely as banks had access to customer deposits for lending and tended to offer lower lending rates.
Legitimate borrowers would also be unlikely to put a house or land title up as collateral at a pawnshop when they could use the same collateral to borrow from a bank at a lower rate of interest, he said. “If they need a large amount of money and they borrow from a pawnshop, it may be that they are using the borrowed money for dishonest purposes rather than a legitimate business activity.”
Hou Samnang, deputy director of the Supervision Department at the NBC, said that there was no ceiling on interest rates at commercial banks, but said most charged less than 2 percent a month, well below the proposed cap for pawnshops.
No competition, says NBC
“Licensing the pawnshop business is to legalise pawnbrokers in Cambodia and to prevent theft; there is no intention of enabling them to compete with the banks,” he said.
Other terms of the prakas include a fixed $250 annual operating license and a 15 percent tax on revenues from loans.
The International Monetary Fund said last week that banks were facing profitability risks given the high interest rates they were paying on deposits and the difficulty they were facing in finding attractive lending opportunities in the wake of the general downturn in the economy.
Shinhan Khmer Bank had $34.08 million in deposits and $24.73 million in loans at the end of last year, according to NBC figures, ranking it 11th among commercial banks in Cambodia on both counts.