factors for survival of pawn broking in india
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1
FACTOR FOR SURVIVAL OF PAWN BROKING
Dissertation submitted in partial fulfilment of the
requirements for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
By
PRAVEEN KUMAR SINGH
2
ABSTRACT
The research aims to find factors which has helped pawn broking to survive in today‘s
business environment where the banks and other non -banking financial institutions are
offering loan for gold as a collateral which earlier for centuries was only provided by pawn
brokers. To study various approach taken by pawn brokers to facilitate the small credit need
borrower.
The research was conducted on the pawn brokers both registered and unregistered
under Pawnbrokers act. A structured questionnaire will help in finding out the factor s on
various aspects i.e. collateral, interest rate & etc. The sample will consist of respondents i.e.
from Bangalore & t he selection of the respondents will be done on simple random sampling
method. The interview method will be followed for data collection.
The research provides empirical insights about how with changing business
environment of lending the pawnbrokers has changed their business strategy on various
factors. It was found that service quality and product customization i.e. varying interest f rom
customer to customer on various aspects.
The research was limited to Bangalore city and respondents were 80 pawnbrokers which
includes both organized and unorganized.
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TABLE OF CONTENTS
Table of Contents ii
List of Tables iii
List of Charts iv
Abbreviations v
CHAPTER I
INTRODUCTION 1
CHAPTER II
REVIEW OF LITERATURE 4
CHAPTER III
RESEARCH METHODOLOGY
3.1 INTRODUCTION 13
3.2 STATEMENT OF THE PROBLEM 13
3.3 VARIABLES UNDER INVESTIGATION 13
3.4 OBJECTIVES OF THE STUDY 14
3.5 HYPOTHESES 14
3.6 SOURCES OF DATA 14
3.7 POPULATION AND SAMPLE OF THE STUDY 14
3.8 STATISTICAL TOOLS 14
3.9 LIMITATIONS OF THE STUDY 15
CHAPTER IV
INDUSTRY OVERVIEW 16
CHAPTER V
DATA ANALYSIS AND INTERPRETATION
4.1 RESPONDENT PROFILE 27
4.2 QUANTITATIVE ANALYSIS 28
4
CHAPTER VI
FINDINGS, CONCLUSION AND SUGGESTIONS
5.1 FINDINGS 57
5.2 CONCLUSION 58
5.3 SUGGESTIONS 59
BIBLIOGRAPHY 60
APPENDIX 62
5
LIST OF TABLES
S No Title Page No
3.1 Sources of Loan 15
3.2 ATMs of scheduled commercial banks (PSBs) in India 19
3.3 Applications received & sanctioned for home loans by PSBs 20
3.4 Gross advances & total deposits of PSBs in India 21
3.5
3.6
Average deposit & lending rates of scheduled bank in India
Access to formal & informal sources of credit
22
24
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
Age
Educational qualification
Registered & unregistered pawnbrokers
Crosstab & Chi-Square Test (Registration & Customer type)
Crosstab & Chi-Square Test (Registration & Credit amount)
Crosstab & Chi-Square Test (Registration & Collateral)
Crosstab & Chi-Square Test (Registration & Interest Rate)
Crosstab & Chi-Square Test (Registration & Borrowing)
Crosstab & Chi-Square Test (Registration & Interest cal.)
Crosstab & Chi-Square Test (Registration &Duration)
Crosstab & Chi-Square Test (Registration & Interest Factor)
Crosstab & Chi-Square Test (Registration & Per cent asset)
Crosstab & Chi-Square Test (Registration & Disbursement)
Crosstab & Chi-Square Test (Registration & Default)
Crosstab & Chi-Square Test (Registration & Default Response)
Crosstab & Chi-Square Test (Registration & Reject proposal)
Crosstab & Chi-Square Test (Registration & Accept proposal)
Crosstab & Chi-Square Test (Registration & High Interest
Rate)
Crosstab & Chi-Square Test (Registration & High collateral)
Crosstab & Chi-Square Test (Registration & Guarantor)
Crosstab & Chi-Square Test (Registration & Lend Less at
normal rate)
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27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
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44
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CHAPTER I
INTRODUCTION
\
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Currently, there is a complex link of financial institution. The commercial banks are not in a
position to supply funds to millions of small borrowers with comparable ease and
informality, i.e., providing the loans on the basis of personal creditworthiness rather than
collaterals. It may be correct to say that local bankers (Pawnbrokers) are performing a gap-
filling function in as much as they are supplying to a class of borrowers to whom the banks
for various reasons cannot reach directly. And is there need to enforce a stronger link
between the organised and the home-grown financial sectors? According to RBI
‗moneylender‘ defined in legislation are generally all-inclusive, and means a person who is in
the business of advancing money (loans), whether as principal business or otherwise.
However, nearly all legislations expressly exclude certain categories of persons from the
definition. The omitted categories are either incorporated bodies or institutions in the
business of banking, insurance, and allocating in securities etc., which are otherwise
regulated by formal regulatory bodies in countries. There are certain other non-incorporated
but registered bodies, such as, registered co-operative societies, which are also excluded from
the definition of moneylenders. Such an individual‘s being expressly omitted; the laws
abroad have also excluded either a course of loans or loans provided by a class of persons
from being regarded as ―loans‖ for the determination of the money lending legislation so
taking them out of the purview of those laws. The reasons behind getting credit from the
moneylenders in the current economic scenario needs to be focussed because in the survey
done under the RBI shows that even though the government have been giving easing lending
facilities to farmers the outstanding debt to these farmer by organised sector increased from
72% in 1991 to 75% in 2002 but similarly there was an increase in outstanding debt by local
moneylenders which increased from 10.2% to 14% in 2002. The concern of ―how customers
select banks‖ has been given sizeable consideration by researchers and Discovering such
information will help banks to recognise the suitable marketing tactics required to attract new
customers base and maintain present ones and parallel of services being offered by banks in
current business environment, it has become ever more significant that banks recognize the
aspects that determine the base upon which customers select between various providers of
financial services. But speaking about the unorganised sector like Pawn broking in India is
one of the oldest part of financial service which caters the credit needs. But with the time the
sector which was having a broad form has now having a very concentrated market which
facilitates customer which may or may not have access to formal banking or their credit need
are different. An extensive variation of marketing concepts related to retail customers has
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been explored, including market segmentation, attitudes, intention, preferences, bank loyalty,
selecting a bank(decision), bank appearance, bank service quality, satisfaction & several bank
users. One marketing construct related to retail customers that has attracted an excess of
studies has been the patronization process of retail customers or the reasons on the basis of
which customers choose to bank with specific banks An exhaustive review of the pertinent
literature suggests two generalizations concerning the patronization process of retail
customers. Although the findings of such studies undoubtedly have made a significant
contribution to the literature on the criteria followed by the retail customers while selecting a
bank, the Western focus of the studies raises critical questions as to the transportability of
their findings to various countries due to differences in economic and legal environments
political & cultural environment.
Indian credit system consist both the organised and unorganised lending. In organised sector
Banks (both private & public sector banks) leads the market along with NBFC and registered
money lenders & pawn brokers while unorganised sector have lenders like unregistered pawn
brokers & other unregistered money lenders.
But the interest rates are on lower side compared to those offered by the traditional Indian
moneylending industry, pawn brokers, gold merchants and other private moneylenders where
few might be licensed but most of them are not. For many years Pawn brokers had monopoly
in rural Indian credit markets but have been accused of cheating people who don't have
access to formal banking by charging inflated rates and take hold of all their properties as
collateral. Pawn brokers usually charged between 24% and 120% annually, according to
Consultative Group to Assist the Poor.
The credit need in India being serviced by both the organised and unorganised can have
various factors for their success. But in India the lending depends upon Interest rates offered
and the collateral accepted and the quality of the collateral. One reason behind the high
interest rate charged by Pawnbrokers is that the money in the business of lending is all equity
which belong to the broker and all the risk in the lending even on the low quality collateral is
faced by the Pawnbrokers whereas Retail banking mobilizes the deposits of individuals and
lending to small business and in retail loan market. It consists of large volumes of low value
transactions. It was known as primary banking in the 1960‘s in Britain which was conducted
by clearing banks dealing with households and the small and medium size firms.
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The city has few registered moneylenders, and an indefinite number of unregistered lenders.
On the town's main drag stand noticeable offices for nearly every kind of lender ranging from
moneylenders & microfinance companies to chit funds, a kind of savings club that auctions
its funds to the highest bidder. Locals say lending is so fizzing that it is possible to get 1 day
loans in the vegetable market that provide 100 rupees in the morning, which have to be repaid
with 10 rupees interest by sunset. Majority of the registered pawn brokers say 80% of them,
started their businesses after 2000, when the total of microfinance lenders began to rise
steeply and the gold was invented to as easy collateral for the loan. But looking into the
organised sector in India which is highly regulated are still away of covering the rural India
or facilitate the credit need which is very frequent and the collateral is also issue to these
individuals. The study is conducted to know what has been the reason behind the survival of
Pawnbrokers in our economic system where one side of service provider are highly regulated
and the other side of the financial service provider is unregulated and local flavour in there
offering.
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CHAPTER II
Literature Review
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Antony Beckett, Paul Hewer and Barry How croft (2010) in their study ―An
exposition of consumer behaviour in the financial services industry‖ found that
customer usually stays with the same bank, regardless of having moved to a location
where their bank is no longer the best amongst the available as they were convenient
earlier or despite the fact that their loan has expired.
Mehmet Ashutay (2012) in its paper ―Conceptualising and Locating the Social Failure
of Islamic Finance: Aspirations of Islamic Moral Economy vs the Realities of Islamic
Finance ―said that the revolution of Islamic banking into a commercial banking form
since mid-1975 has given rise to in unprecented positive financial performance. This
successful financial performance however has been at the cost of the ‗social and
economic developmental‘ aspirations of Islamic moral economy. Therefore Islamic
banks and financial institutions are criticised for their social fiasco. In the research
they explored reasons behind the social failure of Islamic banks and financial
institutions and found the sources of this failure. In restraining the social failure of
Islamic banks and financial institutions, it was suggested that a third institutional
advancement in the form of non-banking financial institutions, such as Islamic social
banking, Islamic microfinance, or an Islamic pawn broking, and zakah funds should
be formed with the objective of helping the social and developmental wants of
Muslim citizens.
Marieke Bos, Paige Marta Skib & Susan Payne Carter (2012) in their research ―The
pawn industry and its customer: The united stated and Europe‖ found that despite the
big difference in the income distribution in these two countries, their respective
pawnbroking industries and pawnshop borrowers seem to have similar characteristics
and behave in a remarkably similar fashion. One an average the amount borrowed was
similar and they pay high interest rate compared to the interest rate paid to the banks.
In USA Javalgi(1989) found that the financial factors like interest paid on savings
account, safety of the fund and availability of loan plays an significant role in
―decision to take out a loan from a particular bank.
Laroche (1986), Sinkula and Lawtor (1988), Ying and Chua (1989) & Newman,
(2001) found that amongst the most vital selection criteria in selecting a bank is
service quality where in service quality studies, measurement of service quality is
carried out within the banking establishments.
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Avkiran (1994) developed a four-factor, seventeen –item scale for measuring service
quality and were used in the branches of Australian commercial bank. Using four-
dimensional measures Angur et. al. (1999) studied alternate measures of service
quality in Indian banks. It was found that service performance had greater
discriminant validity than the service quality scale. A three-factor instrument for
measuring bank service quality was used by Zhou (2004) in China‘s banking industry.
A study conducted by Chua (1981) on ―bank selection criteria‖ it was brought into
being that social factors had a significant role in influencing on a decisions by Asian
customers for choosing a bank for various financial services and also to trust their
money. The social factors included family and friends recommendations.
The intention of bank customers for conventional and Islamic banks was compared by
Al-Ajmi (2009). It was found that Islamic religious belief, pricing and social
responsibility are the most significant factors in choosing a bank for doing business
with them.
Kamakodi and Khan‘s (2008) study, it was found that Indian banking industry is
going through conversion in terms of acceptance of technology and computerisation.
New generation of private sector banks, which came into presence in the last ten years
have increased a sizable market share and government owned banks i.e. public sector
banks were losing market share to these new generation banks. It is very essential for
banks to recognize the preferences of the customers to offer the services mandatory
both to attract new clients and protect the existing client‘s base from transferring to
other banks. In order to understand the factors that influence bank selection reasons
survey was conducted and results obtained from 292 clients were studied.
According to the RBI‘s ―Report of the working group which studied the concerns
related to the gold imports and Gold NBFCs in India‖
The documentation followed by various NBFCs and by various branches of the
same NBFC differs considerably. The central bank might recommend a set of
documents, like the pawn ticket, loan agreement etc., to be used by all the gold
loan companies in a standard format. Instead, the members of AGLOC can
conclude a set of documents duly bearing in mind local laws, which can be vetted
by Reserve Bank. The Association of Gold Loan Companies may instruct all its
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members for adopting these standard set of documents in all transactions. Some
Pawn Brokers Acts or Money Lenders Act say like Tamil Nadu State Acts contain
useful model formats for conceiving such standard documentation. These stages
will defend the interests of the gold loan borrowers to a greater extent.
Simultaneously, the gold loan market in India has shown rapid developments.
While loans on gold as collateral were provided only by money lenders and pawn
brokers for quite a few centuries and availed extensively by people from various
income level & other demographic factors, the more recent years witnessed a
makeover of the gold loan business with a crucial shift in the players from
unorganized sector to organized sector like the banks and specialised NBFCs
institutions considering it as an opportunity.
The traditional and ubiquitous pawn brokers are known to charge usurious rate of
interest.
Any restrictions on the loans against gold jewellery by financial institutions may
lead to people going back to pawn brokers and money lenders for addressing their
credit needs.
If banks carry on to increase their portfolio of gold jewellery, the dependence of
economically weaker sections of the society on the money lenders and pawn
brokers will come down extensively.
According to Pawnbrokers act,1961 there few amendments were done in Act 29 in
1979 because it was seen that few Pawnbrokers were in the habit of pledging with the
commercial banks the pricy articles which was pledge by the borrowers who have
taken loan from the Pawnbrokers.
Islamic Pawn broking: Mohammed et al., (2005) examine the importance of pricing in
the pawn broking transactions and they found that service charge imposed by the
conventional pawn broking system were relatively higher than it was charged under
Ar-rahnu. This meant that the cost of borrowing cash in an Islamic pawn broking
system is lower than counterpart.
Islamic Pawn broking: Ismail and Ahmad (1997) found Islamic pawn shops to charge
a relatively lower transaction fee as compared to conventional pawnshops. In a pawn
broking system, the collateral is of paramount importance. They observed the
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differences in the types of assets pledged as collateral between Islamic and
conventional pawn brokers.
Sanusi and Johari (2006) found in his study on Islamic pawn brokers that they only
accept gold and gold jewellery while conventional pawn brokers accepts items
beyond gold and gold jewellery including costly articles, rare gemstones such as
diamonds and sometimes electrical and electronic goods. Similarly, institutions under
Islamic banking i that offer Ar-rahnu schemes such as Bank Rakyat only accept gold
as collateral.
Manal Aziz Rizk, Dr. Abdel Moneim El (2014) in his study found that factors like
ease of use, security, privacy, service reliability, & giving the customer the chance to
try the service. Providing uninterrupted exercise for both the bank employees and
customers to identify fraud and cybercrimes are important factors to be considered.
As for organizational factors, it was found that addressing the people concerns over
change leads to successful adoption of change projects.
The study on factors affecting customers choices of banking in Ghana by Dabone,
Atta Junior, Bright Addiyiah Osei, Biggles Petershie (2013) revealed that on
proximity and convenience, customers preferred banks that are near their workplace
or homes or banks located at point where vehicular movement is frequent. The
study revealed that the kind of occupation of person has influence his or her
choice of a bank.
Barbara Culiberg & ICA Rojsek in 2010 in the research on the ―Identifying service
quality dimensions as antecedents to customer satisfaction in retail banking‖ found
that service quality perceived by the banks customer and the banks superiority,
essentially be regarded as a source of competitive advantage in the area of retail
banking, as it constitutes the major driver of customer satisfaction. Service quality can
be seen as a competitive advantage, because service range that can easily be
replicated, the service quality measurements are more difficult to imitate and may
signify a sustainable advantage.
Four key factors convenience, competence, recommendation by peers, and free
banking and/or no bank charges were identified in the study conducted by Charles
Blankson , Ogenyi Ejye Omar , Julian Ming-Sung Cheng (2009). They recommended
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that there should be standardisation in retail bank marketing strategies irrespective of
the national development stages. It concluded that retail bank managers particularly in
developing countries should pick up to provide steady and good customer service.
Omar Masood, Jamel E. Chichti, Walid Mansour , Muzafar Iqbal (2009) study
assessed the degree of customer awareness, satisfaction as well as selection criteria.
Where a sample of 200 respondents responded on the various aspects. The
respondents showed certain degree of satisfaction; while there were few respondents
who also expressed their dissatisfaction with some of the Islamic bank's services.
Hinson et al. (2009) suggest that in a global climate characterized by financial
apprehension after the shock of the global financial melt-down, banks would have to
pay the most critical attention to their varied customer audiences in order to rebuild
trust and foster new customer loyalty bonds. With growing competitiveness in the
banking industry and similarity of services offered by banks it has become
increasingly important that banks identify the factors that determine the basis upon
which customers choose between providers of financial services.
Almossawi (2001) and Lenka et al. (2009) support the importance of technology in
commercial bank selection. Managers should realise that young people enjoy dealing
with advanced technical devices such as ATMs. This indicates that, in their bank
selection, the new generation of customers tends to put more emphasis on the factors
which give them quick and convenient access to bank services, rather than factors
related to hospitality, bank premises conditions and bank location.
Omar Masood (2009) in his research attempted to assess the degree of customer
satisfaction, awareness, as well as selection criteria where a sample of 200
respondents was studied through a structured questionnaire. The responses reflected a
certain degree of satisfaction while there were few respondents who also have
expressed their dissatisfaction with some of the Islamic bank's services.
Responsiveness to the query has its own importance to drive the selection of the
banks. Mokhlis (2009) concluded his study that In the selection of banks‖ fast and
efficient service, friendly and helpful staff and reputation of the bank‖ are important
factors. Some customer were found to be sensitive to the core services offered, some
were conscious of every aspect of their banks and some others would shop around for
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the best deal. Excluding few variances in the selection criteria, both Muslim and non-
Muslim have the same value traits in while selecting the financial institution. It was
found that friendliness of staff impacts customer in the bank decision process,
followed by duration of operation, size of waiting lines, accessibility of location and
efficiency of personnel.
In the study of ―The Quality of Private Banking Services as Perceived by Polish
Customers‖ by Dorota Bednarska-Olejniczak (2008) concludes that service quality
evaluation research show that the subsector of private banking in Poland is perceived
by customers as good, in terms of quality. Ease of access to services (via Internet and
other channels) ranked best in the range of attributes under evaluation, closely
followed by attributes associated with the intermediary personal advisor) – such as
knowledge, expertise, behavior and personality traits.
Mohammad Shamsuddoha, University of Chittagong, December 23, 2008, studying
Perception of Customers Regarding Consumer Credit Scheme among the sample
banks in Bangladesh concludes that in the increasingly competitive era of retail
banking business, relationship marketing has been supported as an excellent way for
banks to establish a unique long-term relationship with their existing customers. The
core products offered by majority of the financial institutions are generic, and it is
difficult for most banks to compete this core service. Thus, how customer perceives
has greater value to the bank administration. It is not a matter what product or service
bank are offering to the customer but main thing is that how customer is evaluating
their products while they are trying to consume or refer it to others.
Based on the study of (Beckett & Hewer, 2000) he point out that consumers are
inclined to prefer the prospect of long-term relationships as a selection criterion due to
them avoiding disruption and switching costs. They also confirm that the cost and
type of bank product is important in the purchasing behaviour of consumers and that a
relationship based on trust is important, especially those of professional associations
that ―protect consumers from third parties acting opportunistically‖. Coupled with the
relationship with a bank, perceived service quality was also seen to be an important
bank selection criterion used to select a bank (Aregbeyen, 2011). Indeed, aspects of
the service delivery process which includes ease of handling queries, delivery on the
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service assured and waiting time, whereas in another study it was found that customer
selection of banking services was mainly determine by factors such as dependability
of institutions, approachability, ―convenience‖ of processes for transactions, variety of
services offered and providing loans at economical interest rates.
Huu and Kar (2000) in Singapore he found that students were highly inclined on
pricing (suitable interest rates and reduced service charges) and product magnitudes,
like speedy service and availability of ATMs network near colleges.
Ron Shevlin and Catherine Graeber (2001), reconnoitred the various factor that
influence a customer in while selecting a particular bank. They pointed out that ATM
(Automatic Teller Machine) being the primary reason for a customer choice for a
bank and further branch visit and referral from friends and relatives are most
prevalent sources of influence in Texas, USA.
(Elliot & Shatto, 1996) explores in their study the bank customers in USA and found
that price, speed, and access are predominantly significant. Concluding their research
findings, most customers place a higher transaction speeds than they do on
personalized & higher value instead of lower prices and service, and they are ready to
accept lower service levels in exchange for price breaks.
Reeves & Bednar, 1996) in their study concluded that the ―customer service‖ might
be more important than price and that customers may use further criteria price, speed
and access when choosing between banks, according to where they live (large cities or
countryside) and other market conditions.
Khazeh & Decker (1992) in their studied the bank customers‘ decision criteria and
found that service-charge policy, competitiveness of loan rates reputation, friendliness
of tellers and time required for loan approval, are the most important aspects which
explains how customers select banks for loans.
Kayanak & Kucukemiroglu (1992) in their research which was directed to identify
aspects affecting their decision to select bank for various products & services found
that parking close to bank, appropriate location and the existence of wide range of
loans and mortgage products were few aspects. In the study customer of both
domestic and foreign banks of Hong Kong were studied.The study was also piloted on
the student which revealed the same result.
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Riggall (1980) concluded in his study that convenience of location appears to be the
most influential factor for bank selection by new comers. Laroche et al (1986) reveals
that the most important factors in choice of bank were location, convenience, and
spread of service, competence and personnel behaviour.
A study conducted by Chua (1981) on bank selection criteria found that social factors
such as family and friends recommendations have an important influence on decisions
by Asian customers for choosing a bank to trust their money.
Kaufman, 1967 based on his research, found that the most dominant factors in
customer‘s selection of a bank were suitable location to home or place of business,
length of bank customer‘s relationships and quality of services offered by the bank.
Convenient location, like friendly personnel, favourable loan experience, and advice
of friends and influence of relatives‘ opinion & recommendations are few important
factors suggested by Mason & Mayer (1974)
Gerrard & Cunningham (2001) in their research concluded that convenience as a
factor was of utmost significance in factors for selecting a bank for different products
as compared to various other factors grounded on their survey conducted on
conventional banking customers in other countries like Bahrain & Singapore.
Omo Aregbeyen (2011) in his research investigated determinants of bank selection
choices by customer where a total of 1750 respondents from across six metropolitan
cities across the six geo-political zones were sampled. They responded on the
significance of 25 dissimilar aspects while selecting a bank for deposit were sought
and were examined. It was revealed that the ―safety of funds‖ & ―availability of
technology based service‖ are the most important reasons for customers‘ choice of
banks. It was identified that the safety of funds, quick/prompt service, minimum
waiting time, good query handling, repute /dependability, one stop banking, any
branch banking, innovative products & services, low/realistic service-charges, and
customer friendly/pleasing manners of staff as the key factors in a bank selection. The
large network of branches, nearness to home/work place etc., transactions/security
alert and regular announcement with customers, availability of functional and large
network &secured ATMs all times, and connectivity to other bank's ATMs are also
considered to be one of the important choice determinants.
19
Safiek Mokhlis & Hayatul Safrah Salleh (2009): In their study of comparison between
single and Multiple bank users in Malaysia for commercial bank selection. In the
study it was found that existence of a substantial variation between bank users in the
following selection factors: attractiveness, branch location, ATM service, financial
benefits and secure feeling. Multiple-bankers appear to place significantly more
importance to all these factors.
Cleopas Chigamba and Olawale Fatoki (2011) conducted a study on ―Factors
influencing the choice of commercial banks by university students in South Africa.
Roberts-Lombard (2002) convenience sampling is a non-probability sampling
technique where subjects are selected because of their suitable availability and
accessibility to the researcher. The selection of the sample under convenience
sampling depends on the researcher`s personal judgement. The findings of the study
revealed that university students place a huge emphasis on services when selecting
their banks. The study revealed that the student were more inclined towards the banks
having high technology leverage. All these factors suggested that student doesn‘t want
to waste time in a queue.
20
CHAPTER III
RESEARCH METHODOLOGY
21
3.1 Introduction The research will use a quantitative research methodology approach where a large group of
respondents basically from the Bangalore city will be approached and the data gathered will
be used in descriptive studies to quantify data and generalise the result. The study used the
non-probabilistic (convenience) sampling method. The convenience sampling is a non-
probability sampling technique where subjects are selected because of their convenient
accessibility and accessibility to the researcher. The selection of the sample under
convenience sampling depends on the researcher`s personal judgement. The use of a
convenience sampling method is consistent with the sampling methods. This research will be
the survey method. The data will be gathered by structured questionnaire.
3.2 Problem Statement
Despite the financial inclusion as one of the prime focus the access to the formal banking is
less in the rural India. But in the urban areas still there no formal banking service which
facilitates the small credit needs of people from Low-income group & others. The credit need
for small business, start-up is high and govt. and private sectors are trying to provide a supply
for the demand. There is no consensus as to the factors which made the Pawn broking in
India survive. In this research a structured questionnaire will be used in order to have insight
about the factor which helped Pawn broking in India to grow.
3.3 VARIABLES UNDER INVESTIGATION
Collateral
Interest rate
Frequency of borrowing
Interest rate calculated
Duration
Credit worthiness of customer
Guarantor
Market Condition
Loan disbursement
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Rate of default
3.4 Objective of the study
To study the factors which were important & helped pawn broking in India grow.
To study various approach taken by pawn brokers to facilitate the small credit need.
3.5 Hypothesis
H0: The service quality i.e. customer can get any amount of loan & any point of time
is not a significant factor for Pawnbrokers survival.
H1: The service quality i.e. customer can get any amount of loan & any point of time
is not a significant factor for Pawnbrokers survival.
H0: Product customization i.e. depending upon the customer the rate of interest,
tenure, & amount varies is not a significant factor for Pawnbrokers survival.
H1: Product customization i.e. depending upon the customer the rate of interest,
tenure, & amount varies is not a significant factor for Pawnbrokers survival.
3.6 Sources of Data:
Two types of data will be taken into consideration i.e. Primary data and Secondary data.
Primary Data: Direct collection of data by personal interviewing and survey where
the target sample will be pawnbrokers of Bangalore
Secondary Data: Indirect collection of data from websites, various researches &
working paper to have insights for the research. This would help in considering the
factors which will be taken into consideration for the questionnaire.
3.7 POPULATION AND SAMPLE OF THE STUDY
Sampling Unit: Bangalore city.
Sample size: The sample will consist of 80 respondents. The selection of the
respondents will be done on simple random sampling method. Respondent will be
pawnbrokers of Bangalore.
Data collection Method: Interview Method
3.8 STATISTICAL TOOLS
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Crosstab
Factor analysis
3.9 LIMITATIONS OF THE STUDY
1. Sample size was limited to 102 because of limited time which is small to represent the
whole population.
2. The research was limited to Bangalore city only and if the same research would have been
carried in another city, the results may vary.
3. Sometimes the respondents because of their business didn‘t able to concentrate while
filling up the questions. However the researcher tried there level best to overcome the
limitation by explaining the importance of research.
24
CHAPTER IV
INDUSTRY OVERVIEW
25
The All India Debt and Investment Survey (NSS Fifty-Ninth Round) has revealed that share
of institutional agencies in the total cash dues of urban households had increased from 72 per
cent in 1991 to 75.1 per cent in 2002 and that of moneylenders had also increased during the
period from 10.2 per cent to 14.1 per cent. In the case of rural households, on the other hand,
the share of institutional agencies had in fact declined from 64 per cent in 1991 to 57.1 per
cent in 2002. And more significantly, the share of moneylenders had increased in the same
period from 17.5 per cent to 29.6% in the case of rural households.
An analysis of source-wise distribution of outstanding loans taken by farmer households in
different States is given
Table: 3.1
Sources of Loan
Govt.
Co-op.
Bank
Agri./
Trader
Relatives &
Doctor,
Others
All societ
y profess-ional
friends lawyer
money
etc.
lender
Andhra Pr. 10 104 200 534 48 53 9 41 1000
Arunachal Pradesh
61 0 208 0 159 507 0 65 1000
Assam 70 27 278 155 120 247 5 99 1000
Bihar 22 25 370 328 11 128 12 106 1000
Chhattisgarh
13 206 505 130 42 63 7 35 1000
Gujarat 5 418 272 65 44 177 9 10 1000
Haryana 11 239 426 241 31 34 15 4 1000
Himachal Pr.
61 116 476 72 55 170 1 49 1000
Jammu & Kashmir
131 2 543 11 155 155 0 2 1000
Jharkhand 39 45 557 190 17 136 4 12 1000
Karnataka 19 169 501 200 19 68 4 21 1000
Kerala 49 283 491 74 17 66 10 9 1000
Madhya Pr. 19 169 381 226 90 101 5 8 1000
Maharashtra
12 485 341 68 8 59 3 24 1000
Manipur 15 0 167 329 40 401 0 49 1000
Meghalaya 60 0 0 128 3 809 0 0 1000
26
Mizoram 243 31 499 0 33 193 0 0 1000
Nagaland 75 77 536 3 153 155 0 0 1000
Orissa 130 181 437 148 8 84 1 10 1000
Punjab 19 176 284 363 82 63 6 7 1000
Rajasthan 13 59 270 365 192 69 18 14 1000
Sikkim 348 0 230 73 221 67 0 61 1000
Tamil Nadu 20 233 281 397 4 52 1 11 1000
Tripura 164 28 605 20 39 119 0 25 1000
Uttar Pr. 24 67 512 191 29 138 19 20 1000
Uttaranchal 315 48 398 59 17 149 0 14 1000
West Bengal
103 192 285 130 107 154 7 23 1000
Group of UT’s
307 147 136 103 61 245 0 1 1000
All India 25 196 356 257 52 85 9 21 1000
Estimated Number (00)
14769
114785
117100
125000 53902 77602 7181 14605 43424
2
Sample Number
992 5844 6296 6919 3018 4528 345 872 23935
In India government is focusing on financial inclusion which aims at providing banking
facility at an affordable rate to rural part of the country, precisely small business and low
income household. The low income household has not been provided the credit they require.
Financial Inclusion aims to provide efficient and cost-effective banking services in the un-
banked and remote corners of the country. The government came up with Adhaar card which
could be used as a proof of Identification for opening up account and banks opened 7.73 cr
accounts under Pradhan Mantri Jan Dhan Yojna with a balance of 4,946.03cr. RBI directed
commercial banks to provide ICT based banking services – through Business
Correspondents. These ICT enabled banking services have CBS connectivity to provide all
banking services including deposit and withdrawal of money in the financially excluded
regions. The number of ICT-based transactions through BCs increased from 26.52 million in
March 2010 to 250.46 million in March 2013, while transactions amount increased steadily
from Rs.6.92 billion to Rs.233.88billion during the same period.
27
According to Nachiket more committee recommendation every adult above 18 years of our
country should have a bank account by january1, 2016, the committee also emphasised on
providing agricultural advances and said that electronic benefit transfer is integral part of
overall financial inclusion. Ultra Small Branches may be set up between the base branch and
BCs to provide support to about 8-10 BC units at a reasonable distance. Upliftment of MSME
sector is also a prime focus of government of India. Many private and public bank have
introduced SME banking and to facilitate the financing needs, SME can raise it through BSE-
SME by coming up with issue. State Bank of India also provide Loans to MSME sector upto
1cr which is collateral free, provided the business have a three years of P&L statements and
balance sheet.
Indian banks witnessed a high growth rate between 2002-2008, which was approximately
22%. Indian banks had emerged safe from the global financial crisis in the year 2008 because
they had limited exposure to one of those riskier assets. Moreover, India‘s strong domestic
economy was driving growth at much higher levels compared to its global counterparts
Indian Banks are divided into four broad categories Nationalised banks, Indian private banks,
Regional Rural Banks & Foreign banks resulting approximately 80 banks. At the end of
March 2013 the aggregate deposit of banks in Indian amounted to 70,126,204 million
registering a growth of 15.4 per cent where the increase rate has been 12.8 per cent in 2012.
The savings deposit grew at 14.7 per cent which was 9.5 per cent in the year 2012 while
current deposit saw a growth of 6.6 per cent as against a decline in last financial year. Also
the growth of term deposit reduced marginally to 17.1 per cent which was 17.4 per cent in
2012. The number of the deposit accounts increased by 15.7 per cent in 2013 to 1,045 million
from 905 million accounts in 2012 where savings bank account in ;2013 stood 823 million as
compared to 703 million in 2012. At the end of March 2013 Indian scheduled commercial
banks had gross outstanding credit of INR 55,253,170 million registering an increase of 15
per cent against increase of 17 per cent in the year 2012, where borrowal accounts declined
by 2.0 per cent to 128 million in 2013 which was 131 million in 2012. Further, in 2013 rural
& Semi-urban centres registered growth rate at 19.9 per cent and 20.9 per cent, respectively.
‗Personal Housing Loans‘ grew at 22.7 per cent in 2013 as compared to 9.5 per cent in 2012
& credit to ‗Professional and Other Services‘ sector witnessed a growth of 10.3 per cent in
2013 as against a marginal decline in the previous year.
28
The factor which drives the growth of the banks is the demand for credit which consists of
both the Retail lending and the wholesale lending. The above data provides the insights about
formal lending in India, where a lot of documentation, product differentiation, Integration of
technology, EMI repayment, etc. goes on. But in India economy the informal lending happen
every day. The customer involved is not a salaried person, neither have they had high value
collateral and the documents KYC forms are not an integral part of the lending. The interest
rate can daily, weekly, monthly, yearly etc. Formal and informal credit finance coexists in
markets and the poor people go for informal credit or for both at the same time. The credit
need of this segment if fulfilled by ―PAWNBROKERS‖
A pawnbroker are an individual or a businessman which offers credits to people which are
secured in nature, with assets like property owned by individual, gold etc. are preferred as a
collateral. The word pawn means Pledge which derived from latin word pignus. The pawn
brokers in India provides loan to those customers who are not either a salaried or self-
employed. The customers include daily wagers too.
According to The Wall Street journal, microfinance India has grown undoubtedly but so do
the pawnbrokers. Borrowing money in rural India, Even as the government and non-profit
organizations came together to create the Indian microfinance market in the 1990s, traditional
moneylenders' share of total rural Indian household debt grew to 29.6% from 17.5%,
according to a government survey. Another recent survey by the Reserve Bank of India found
that between 1995 and 2006, the number of registered traditional moneylenders increased
56% to 19,627 from 12,601. Though much harder to quantify, unlicensed lenders are believed
to have made similar gains, the survey says. The main reasons which are supposed to increase
in these lenders are that the financial literacy is very low, collateral free lending, availability
of loan at any given point of time, no documentation (as the literacy rate is low). The loan can
be taken on daily basis also. Some of the loans taken by the customers are for repayment of
debt to microfinance or other NBFC. Even the presence of the formal banking system and
govt. efforts towards providing formal banking at an affordable rate pawn brokers have
flourished. There do exist a relationship between institutional development, level of income
and informal lending. This research paper which figure out the factors which help the pawn
broker to survive even though the bank and there service like Branch Banking, ATMs etc. has
increased in numbers and facilities are also provided in Tier 2 and Tier 3 cities.
29
Table: 3.2
Bank/Population Group-wise Number of Branches and ATMs of Scheduled
Commercial Banks (Private Sector Banks) in India
(As on 31.03.2012)
Banks
Branches ATMs
Rural
Semi-
Urban
Metro-
Total
On- Off-
Total urban politan site site
Scheduled Commercial Banks 23776 22468 17878 17118 81240 47545 48141 95686
Private Sector Banks 1581 4687 3569 3615 13452 13249 22830 36079
Old Private Sector Banks 881 2025 1395 1085 5386 3342 2429 5771
Catholic Syrian Bank Ltd. 18 203 98 50 369 121 57 178
City Union Bank Ltd. 42 104 95 61 302 234 266 500
Dhanalakshmi Bank Ltd. 24 106 82 61 273 171 229 400
Federal Bank Ltd. 62 520 191 157 930 647 358 1005
ING Vysya Bank 83 93 163 184 523 232 198 430
Jammu and Kashmir Bank Ltd. 284 100 134 64 582 344 164 508
Karnataka Bank Ltd. 94 114 148 152 508 216 136 352
Karur Vysya Bank Ltd. 41 163 141 101 446 472 353 825
Lakshmi Vilas Bank Ltd. 42 105 86 57 290 172 369 541
Nainital Bank Ltd. 25 29 25 22 101 - - -
Ratnakar Bank Ltd. 25 30 20 26 101 43 14 57
South Indian Bank Ltd. 83 332 158 116 689 523 140 663
Tamilnad Mercantile Bank Ltd. 58 126 54 34 272 167 145 312
New Private Sector Banks 700 2662 2174 2530 8066 9907 20401 30308
Axis Bank Ltd. 133 520 480 473 1606 2058 7866 9924
Development Credit Bank Ltd. 5 16 11 54 86 86 234 320
HDFC Bank Ltd. 177 913 654 768 2512 3823 5090 8913
ICICI Bank Ltd. 285 913 721 827 2746 3032 5974 9006
IndusInd Bank Ltd. 36 97 139 131 403 347 345 692
Kotak Mahindra Ltd. 33 70 82 171 356 318 530 848
Yes Bank Ltd. 31 133 87 106 357 243 362 605
Sources: INDSTATS
30
The below data shows the credit demand in India from the formal banking system and it can
be seen the customer served by the banks were less compared to the demand. Though the
pawnbrokers don‘t serves the big amount but these rejected applicants can be customers.
Source : Lok Sabha Starred Question No. 441, dated on 08.08.2014.
Bank-wise Number of Application Received for Home Loan and Loan
Sanctioned by Public Sector Banks and Number of Instances for
Delay/Refusal Received and Disposed in India
(2013-2014 and 2014-2015)
Bank
During Current Year Number of Instances
of Delay/Refusal
Number Amount
Received Disposed
of of Loan
Appli- Sanctioned
cations (Rs. in Crore)
Received Allahabad Bank 4388 590.47 0 0
Andhra Bank 4041 634 0 0
Bank of Baroda 27315 1832 0 0
Bank of India 8553 1341 0 0
Bank of Maharashtra 4730 676 9 9
Canara Bank 8067 1221 0 0
Central Bank of India 25244 1621.11 35 35
Corporation Bank 4743 4410 0 0
Dena Bank 1720 210.43 0 0
Indian Bank 3894 421.66 4 0
Indian Overseas Bank 2814 429.82 0 0
Oriental Bank of Commerce 4555 678.38 0 0
Punjab National Bank 9511 1690.49 0 0
Punjab & Sind Bank 2109 228.38 0 0
Syndicate Bank 5309 700.42 0 0
Union Bank of India 7443 1084.13 0 0
United Bank of India 4442 446.62 0 0
UCO Bank 3310 485.13 0 0
Vijaya Bank 3030 470 0 0
State Bank of India 57168 8553.8 0 0
State Bank of Bikaner & Jaipur
1023 55.58 0 0
State Bank of Hyderabad 5326 616.96 0 0
State Bank of Mysore 2714 484.79 0 0
State Bank of Patiala 4839 429 0 0
State Bank of Travancore 4360 386 0 0
IDBI Bank 13835 2696 0 0
Table 3
Table: 3.3
31
Sources : Lok Sabha Unstarred Question No. 3371, dated on 01.08.2014.
The ROI of pawnbrokers can be as high as 20% which is very high compared to banks.
Bank-wise Gross Advances and Total Deposits of Public Sector Banks in India
(March 2011 to March 2014)
(Rs. in Crore)
Banks
Gross Advances Total Deposits
March, 2011
March, 2012
March, 2013
March, 2014
March, 2011
March, 2012
March, 2013
March, 2014
Allahabad Bank 94571 112250 130936 140905 131887 159593 178742 190843
Andhra Bank 72154 84684 100138 110649 92156 105851 123796 141845
Bank of Baroda 231326 291007 332811 403699 305439 384871 473883 568894
Bank of India 216154 251494 292968 376228 298886 318216 381840 476974
Bank of Maharashtra
47487 56979 76397 90369 66845 76529 94337 116803
Bharatiya Mahila Bank Ltd.
- - - 89 - - - 87
Canara Bank 212295 233607 243936 303431 293437 327054 355856 420723
Central Bank of India
131407 150725 176234 183321 179356 196173 226038 240069
Corporation Bank
87213 100825 119354 138643 116748 136142 166005 193393
Dena Bank 45163 57159 66457 78622 64210 77167 97207 110028
IDBI Bank Limited
158205 182799 200135 203376 180486 210493 227116 235774
Indian Bank 75726 91184 107156 124359 105804 120804 141980 162275
Indian Overseas Bank
113791 143273 164366 181081 145229 178434 202135 227976
Oriental Bank of Commerce
96839 113050 130186 140765 139054 155965 175898 193489
Punjab & Sind Bank
42833 46369 51843 57858 59723 63124 70642 84730
Punjab National Bank
243999 297893 315244 359646 312899 379588 391560 451397
Syndicate Bank 108350 125617 149423 176241 135596 157941 185356 212343
UCO Bank 100561 117504 131569 153163 145278 154003 173431 199534
Union Bank of India
153022 181031 211911 234332 202461 222869 263762 297676
United Bank of India
53934 63873 69708 67982 77845 89116 100652 111510
Vijaya Bank 49222 58671 70514 82425 73248 83056 97017 124296
Nationalised Banks
2334254 2759993 3141286 3607182 3126586 3596989 4127252 4760657
State Bank of Bikaner & Jaipur
41744 49986 58474 65333 53852 61572 72116 73875
State Bank of Hyderabad
65423 78311 92023 98827 88628 98732 113324 119510
State Bank of India
771802 893613 1078557 1245122 933933 1043647 1202740 1394409
State Bank of Mysore
34426 40653 45981 50862 43225 50186 56969 61560
State Bank of Patiala
52331 64142 75460 77811 68066 79417 88672 89673
State Bank of Travancore
46471 56034 68389 70782 58158 71470 84624 89337
SBI Group 1012196 1182739 1418883 1608738 1245862 1405024 1618445 1828363
Public Sector Banks
3346450 3942732 4560169 5215920 4372449 5002013 5745697 6589020
Table: 3.4
32
Average Deposit and Lending Rates of Scheduled
Commercial Banks In India
(March, 2013 to October, 2013)
Items Average Interest Rates Variations
(Percentage Points)
Mar-13 Jun-13 Sep-13 Oct-13 March-October #
A. Domestic Deposit Rates
(I) Public Sector Banks
Up to 1 Year 6.74 6.54 7.02 7 0.26
1-3 Year 8.93 8.8 8.89 8.95 0.02
Above 3 Year 8.85 8.8 8.78 8.83 -0.02
All Maturities 7.63 7.5 7.77 7.78 0.15
(II) Private Sector Banks
Up to 1 Year 6.24 6.31 6.84 6.78 0.54
1-3 Year 9.05 9 9.07 9.09 0.04
Above 3 Year 8.82 8.78 8.84 8.85 0.03
All Maturities 7.35 7.37 7.72 7.68 0.33
(III) Foreign Banks
Up to 1 Year 6.35 6 7.34 7.26 0.91
1-3 Year 7.5 7.35 8.48 8.34 0.84
Above 3 Year 7.69 0.5 8.71 8.53 0.84
All Maturities 6.87 6.6 7.92 7.76 0.89
Scheduled Commercial Banks
Up to 1 Year 6.45 6.26 7.12 7.04 0.59
1-3 Year 8.38 8.28 8.77 8.74 0.36
Above 3 Year 8.44 8.34 8.77 8.72 0.28
All Maturities 7.27 7.12 7.81 7.74 0.47
Median Deposit Rate 7.42 7.35 7.8 7.77 0.35
Modal Deposit Rate 7.31 7.26 7.46 7.56 0.25
B. Base Rate
(I) Public Sector Banks 10.21 10.21 10.2 10.21 0
(II) Private Sector Banks 10.48 10.46 10.6 10.62 0.14
(III) Foreign Banks 9.54 9.51 9.89 9.89 0.35
Scheduled Commercial Banks 9.99 9.97 10.17 10.17 0.18
Median Base Rate 10.2 10.2 10.25 10.25 0.05
Modal Base Rate 10.25 10.25 10.25 10.25 0
C. Weighted Average Lending Rate *
(I) Public Sector Banks 12.18 12.1 12.1 - -0.08
(II) Private Sector Banks 12.13 12.1 12.47 - 0.34
(III) Foreign Banks 12.1 12.24 12.86 - 0.76
Scheduled Commercial Banks 12.16 12.11 12.21 - 0.05
Sources: INDSTAT
Table: 3.5
33
According to working paper study ―Sadhan Kumar (2011) worked out an Index on financial
inclusion (IFI) based on three variables namely penetration (number of adults having bank
account), availability of banking services (number of bank branches per 1000 population) and
usage (measured as outstanding credit and deposit). The results indicate that Kerala,
Maharashtra and Karnataka has achieved high financial inclusion (IFI >0.5), while Tamil
Nadu, Punjab, A.P, H.P, Sikkim, and Haryana identified as a group of medium financial
inclusion (0.3<IFI<0.5) and the remaining states have very low financial inclusion.
NSSO 59TH ROUND SURVEY RESULTS
51.4% of farmer households are financially excluded from both formal/ informal
sources.
Of the total farmer households, only 27% access formal sources of credit; one third of
this group also borrowed from non-formal sources.
Overall, 73% of farmer households have no access to formal sources of credit.
Across regions, financial exclusion is more acute in Central, Eastern and North-
Eastern regions. All three regions together accounted for 64% of all financially
excluded farmer households in the country. Overall indebtedness to formal sources of
finance of these three regions accounted for only 19.66%.
However, over the period of five decades, there has been overall improvement in
access to formal sources of credit by the rural households.
Table: 3.6
Sources: RBI
34
In India though many pawn brokering is done without licence in various parts of country, two
states Karnataka & Tamil Nadu has tried to regulate the these segment by introducing The
Andhra Pradesh Pawnbrokers Act, 2002, The Karnataka money lenders Act, 1965, The
Karnataka Pawn Broker act 1961 and The Madras Pawnbrokers Act 1943. According to
the act ―licence.—No person shall, after the expiry of six months from the date on which the
provisions of this Act come into force in any area, carry on or continue to carry on business
as a pawnbroker at any place in such area, unless he has obtained a pawn-broker‘s licence
under this Act 1[and after the commencement of the Karnataka Pawn Brokers (Amendment)
Act, 1985, except on payment of security deposit as provided in section.‖ Later on few
amendments were done in Act 29 in 1979 because it was seen that certain Pawnbrokers were
in the habit of pledging with the commercial banks the costly articles which was pledge by
the people who have taken loan from the Pawnbrokers. Therefore it became necessary to
amend the act so that the said practice can be brought under the purview of the provisions of
the act. Later, in 1985 the amendment was done because it was seen that people who obtain
credit from the licensed Pawn Brokers, pledge costly gold ornaments and other articles and to
safeguard the interests of people it was considered necessary to insist security deposit from
such licensed Pawn Brokers.
The Madras Pawnbrokers Act, 1943 is in force in the Tamil Nadu, Pawnbrokers in other
areas were regulated by the existing Money-Lenders Acts in force in the respective areas.
After a careful deliberation, it was, however, noticed that provisions made for pawnbrokers
are not the same as those for money-lenders and hence, it has been considered desirable to
enact a separate legislation for regulation and control of pawnbrokers in the State
PAWN BROKING IN PHILIPPINES
During the height of the financial crisis, pawnshops were very selective with regard to the
kind of assets they accepted as collateral. They preferred less bulky high-valued items like
jewellery. Lately, however, with the stiffer competition, pawnshops have broadened the range
of items they accept as collateral. Some pawnshops even accept appliances like electric fans
and radios. The stiff competition among pawnshops has also brought down the effective
lending rates charged. In recent scenario all pawnshops no longer impose service charges and
liquidated damage fees for overdue loans. While most pawnshops still charge 5 per cent per
35
month for their loans, others have started giving discounts, especially to highly-favoured
clients.
In this research it cannot be said whether the Pawnbroker and Banks in India are substitute or
a compliment. But it can be seen that pawnbrokers have carved out their own niche in the
Indian financial market, by serving small borrowers who could not be accommodated by
formal banking system. And introduction of the Pawnbrokers act also indicates that govt.
have the same view. This research focuses on the factors which contributed towards existence
Pawnbrokers in India.
36
CHAPTER V
DATA ANALYSIS AND
INTERPRETATION
37
Registered
Unregistered
RESPONDENT PROFILE
Age Respondent
20-30 0
30-40 17
40-50 44
50-60 19
60 &
above 0
Educational Qualification
Primary 0
Secondary 2
Undergraduate 63
Post Graduate 15
Pawnbroker Registered 34 Unregistered 46
0
17
44
19
0
Age
20-30
30-40
40-50
50-60
60 & above
0 10 20 30 40 50
Series1
0 20 40 60 80
Educational Qualification
Primary
Secondary
Undergraduate
Post Graduate
Series1
Table 4.1: AGE
Table 4.3: Educational Qualification
Table 4.3: Registered & Unregistered Pawnbrokers
38
QUANTITATIVE ANALYSIS
1. Registration*Customer Type
Table 4.4
Crosstab
CustomerType Total
LIG MIG
Registration
Yes Count 10 24 34
% within Registration 29.4% 70.6% 100.0%
No Count 19 27 46
% within Registration 41.3% 58.7% 100.0%
Total Count 29 51 80
% within Registration 36.2% 63.8% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Exact Sig. (2-
sided)
Exact Sig. (1-
sided)
Pearson Chi-Square 1.196a 1 .274
Continuity Correctionb .737 1 .391
Likelihood Ratio 1.210 1 .271
Fisher's Exact Test .349 .196
Linear-by-Linear
Association 1.182 1 .277
N of Valid Cases 80
a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 12.33.
b. Computed only for a 2x2 table
Sources: SPSS
Amongst the total 80 respondent 34 are registered under ―The Karnataka Pawnbrokers act‖.
Out of 34 registered Pawnbrokers 10 (29.4%) do majority of its lending to Lower income
group and 24(70.6%) Pawnbrokers lends to medium income group. While amongst 46
unregistered Pawnbrokers 29 of them lends to Lower income group while 51 pawnbrokers
lends to Medium Income group which forms 58.7%% of their gross lending done.
39
Conclusion: Registered & unregistered pawnbrokers focus more on Medium income group
having 63.8% of gross lending provided to them.
2. Registration*Credit amount
Table 4.5
Crosstab
Creditamount Total
20000-
30000
30000-
40000
40000-
50000
50000 and
above
Registration
Yes
Count 4 10 14 6 34
% within
Registration 11.8% 29.4% 41.2% 17.6% 100.0%
No
Count 0 12 29 5 46
% within
Registration 0.0% 26.1% 63.0% 10.9% 100.0%
Total
Count 4 22 43 11 80
% within
Registration 5.0% 27.5% 53.8% 13.8% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 7.883a 3 .049
Likelihood Ratio 9.356 3 .025
Linear-by-Linear
Association 1.399 1 .237
N of Valid Cases 80
a. 3 cells (37.5%) have expected count less than 5. The minimum
expected count is 1.70.
Sources: SPSS
Majority of the lending done by the registered Pawnbrokers falls in the lending range of
40000-50000 which constitutes 41.2% of the total lending done by them. While the
unregistered pawnbrokers did majority of their lending to the range of 40000-5000 having
63% of the total lending done by them. The bank is not concerned about this amount of
40
lending because of the operating costs involved. The 40000-50000 is a range which is 53.8%
of the cumulative lending done by pawnbrokers.
Conclusion: Both unregistered and registered Pawnbrokers are more focussed on the lending
which amounts between 40000-50000 and with some or no paper work.
3. Registration * Collateral
Table 4.6
Crosstab
Collateral Total
Other assets Gold
Registration
Yes Count 14 20 34
% within Registration 41.2% 58.8% 100.0%
No Count 21 25 46
% within Registration 45.7% 54.3% 100.0%
Total Count 35 45 80
% within Registration 43.8% 56.2% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Exact Sig. (2-
sided)
Exact Sig. (1-
sided)
Pearson Chi-Square .159a 1 .690
Continuity Correctionb .029 1 .864
Likelihood Ratio .159 1 .690
Fisher's Exact Test .820 .433
Linear-by-Linear
Association .157 1 .692
N of Valid Cases 80
a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 14.88.
b. Computed only for a 2x2 table
Sources: SPSS
Property as a collateral is not being accepted while majority of the responses were either gold
or other assets. Amongst the responses registered pawnbrokers accepts Gold as collateral
41
which constitutes 58.8% of the collateral accepted. While unregistered pawnbrokers also
accepted gold as preferred collateral with 54.3% out of total respondents.
Conclusion: Being highly liquid Gold is more accepted as collateral which is 56.2% of the
total collateral accepted by both registered and unregistered.
4. Registration * Interestrate
Table 4.7
Crosstab
Interestrate Total
Fixed Floating Fixed & Floating
Registration
Yes Count 18 2 14 34
% within Registration 52.9% 5.9% 41.2% 100.0%
No Count 30 0 16 46
% within Registration 65.2% 0.0% 34.8% 100.0%
Total Count 48 2 30 80
% within Registration 60.0% 2.5% 37.5% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 3.410a 2 .182
Likelihood Ratio 4.131 2 .127
Linear-by-Linear
Association .728 1 .394
N of Valid Cases 80
a. 2 cells (33.3%) have expected count less than 5. The minimum
expected count is .85.
Sources: SPSS
Amongst all the respondents, registered Pawnbrokers with 52.9% responses replied they
charged fixed interest rate and 41.2% charges fixed & floating interest rate. But the
unregistered pawnbrokers 65.2% of them charges fixed and 34.8% of them charges fixed and
floating. Only few respondents replied the floating interest rate. In India, deposits have fixed
interest rate but lending is done on floating rate.
42
Conclusion: 60% of the total lending was done on fixed interest rate which assures the
borrower amount of liability they are liable to pay. This can be a factor which differentiates
the lending done by pawnbrokers and the bank and other RRB.
5. Registration * Borrowing
Table 4.8
Crosstab
Borrowing Total
Low Medium High
Registration
Yes Count 13 10 11 34
% within Registration 38.2% 29.4% 32.4% 100.0%
No Count 5 26 15 46
% within Registration 10.9% 56.5% 32.6% 100.0%
Total Count 18 36 26 80
% within Registration 22.5% 45.0% 32.5% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 9.700a 2 .008
Likelihood Ratio 9.860 2 .007
Linear-by-Linear
Association 2.728 1 .099
N of Valid Cases 80
a. 0 cells (0.0%) have expected count less than 5. The minimum
expected count is 7.65.
Sources: SPSS
Registered pawnbrokers, out of 13 out of 34 says that rate of borrowing is low while 10 out
of 34 says that borrowing rate is medium n remaining responded that borrowing has been
high. Amongst 46 unregistered respondents 10.9% responded low frequency of borrowing
while 56.5% and 32.6% of responses said the frequency of borrowing was medium and high
respectively.
43
Conclusion: 45% i.e. 36 out of 80 respondents replied the lending frequency was medium
which concludes that still there are good number of borrowers available for pawnbrokers.
6. Registration * Interest calc.
Table 4.9
Crosstab
Interestcalc Total
Simple Interest Compund
Interest
Registration
Yes Count 17 17 34
% within Registration 50.0% 50.0% 100.0%
No Count 31 15 46
% within Registration 67.4% 32.6% 100.0%
Total Count 48 32 80
% within Registration 60.0% 40.0% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Exact Sig. (2-
sided)
Exact Sig. (1-
sided)
Pearson Chi-Square 2.464a 1 .116
Continuity Correctionb 1.792 1 .181
Likelihood Ratio 2.462 1 .117
Fisher's Exact Test .166 .090
Linear-by-Linear
Association 2.433 1 .119
N of Valid Cases 80
a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 13.60.
b. Computed only for a 2x2 table
Sources: SPSS
50% of the registered pawnbrokers responded that they go for simple interest and other 50%
of the registered pawnbrokers responded compound interest for calculating interest rate. But
67.4% of the unregistered pawnbrokers use simple interest and 32.6% go for compound
interest. But from the overall response 60% of the total respondent goes for simple interest
for calculation of interest.
44
Conclusion: Simple interest for calculation of interest rate is followed by majority of the
pawnbrokers i.e. out of 80 respondents 60% of them follows simple interest.
7. Registration * Duration
Table 4.10
Crosstab
Duration Total
15-30 30&above
Registration
Yes Count 11 23 34
% within Registration 32.4% 67.6% 100.0%
No Count 11 35 46
% within Registration 23.9% 76.1% 100.0%
Total Count 22 58 80
% within Registration 27.5% 72.5% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Exact Sig. (2-
sided)
Exact Sig. (1-
sided)
Pearson Chi-Square .698a 1 .403
Continuity Correctionb .339 1 .560
Likelihood Ratio .694 1 .405
Fisher's Exact Test .454 .279
Linear-by-Linear
Association .690 1 .406
N of Valid Cases 80
a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 9.35.
b. Computed only for a 2x2 table
Sources: SPSS
11 registered Pawnbrokers out of 34 responded that the avg. Duration for the loan is 15-30
days while the rest of the Pawnbrokers said the avg. duration of the lending falls in the range
of 30& above days. The number of respondent is same even for unregistered Pawnbrokers
who replied the duration of lending falls in 15-30 days, while 35 responds the duration is for
more than 30 days and above.
45
Conclusion: Amongst the total responses, 72.5% concludes the lending duration is for 30
days and above, 27.5% says duration ranges between 15-30 days. In India, the lending by
banks is not in number of days.
8. Registration * Int.factor
Table 4.11
Crosstab
Int.factor Total
Credit
worthiness
Collateral Personal know-
how
Registration
Yes Count 19 8 7 34
% within Registration 55.9% 23.5% 20.6% 100.0%
No Count 22 17 7 46
% within Registration 47.8% 37.0% 15.2% 100.0%
Total Count 41 25 14 80
% within Registration 51.2% 31.2% 17.5% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 1.698a 2 .428
Likelihood Ratio 1.727 2 .422
Linear-by-Linear
Association .024 1 .876
N of Valid Cases 80
a. 0 cells (0.0%) have expected count less than 5. The minimum
expected count is 5.95.
Sources: SPSS
While lending the money amongst registered pawnbrokers 19 responded that the interest rate
depends upon credit worthiness while 8 out of 34 responded it depends upon collateral and
the remaining 7 responded personal know-how as an important factor for interest rate
determination. Amongst unregistered pawnbrokers 22 responded that the interest rate
depends upon credit worthiness while 17 out of 34 responded it depends upon collateral and
the remaining 7 responded personal know-how as an important factor for interest rate
determination.
46
Conclusion: Amongst the entire respondents 51.2% says that credit worthiness as an
important factor in interest rate determination while 25 out of 80 Pawnbrokers considered
collateral as an important factor. This shows the product customization characteristics of their
service.
9. Registration * percent assets
Table 4.12
Crosstab
percentassets Total
>60 >70 >80
Registration
Yes Count 10 19 5 34
% within Registration 29.4% 55.9% 14.7% 100.0%
No Count 15 26 5 46
% within Registration 32.6% 56.5% 10.9% 100.0%
Total Count 25 45 10 80
% within Registration 31.2% 56.2% 12.5% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square .296a 2 .863
Likelihood Ratio .293 2 .864
Linear-by-Linear
Association .237 1 .626
N of Valid Cases 80
a. 1 cells (16.7%) have expected count less than 5. The minimum
expected count is 4.25.
Sources: SPSS
55.9% Registered Pawnbrokers responded that they lend less than 70% of the value of
collateral, 29.4% said that they lend less than 60% of the collateral value and 14.7%
responded they lend less than 80% of the collateral value. 56.5% Registered Pawnbrokers
responded that they lend less than 70% of the value of collateral, 32.6% said that they lend
less than 60% of the collateral value and 12.5% responded they lend less than 80% of the
collateral value.
47
Conclusion: Majority of the lending is less than 70% of the value of collateral which shows
that the collateral taken by the pawnbrokers is not just only for the suasion but it will affect
the amount they borrow.
10. Registration * Disbursement
Table 4.13
Crosstab
Disbursement Total
Few hours Days week
Registration
Yes Count 4 11 19 34
% within Registration 11.8% 32.4% 55.9% 100.0%
No Count 6 9 31 46
% within Registration 13.0% 19.6% 67.4% 100.0%
Total Count 10 20 50 80
% within Registration 12.5% 25.0% 62.5% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 1.719a 2 .423
Likelihood Ratio 1.705 2 .426
Linear-by-Linear
Association .404 1 .525
N of Valid Cases 80
a. 1 cells (16.7%) have expected count less than 5. The minimum
expected count is 4.25.
Sources: SPSS
32.4% of the registered pawnbrokers disburses the loan in few days, 11.8% of them disburses
in few hours, wherein 55.9% of the pawnbrokers took week for the disbursement of the
loan.19.6% of the unregistered pawnbrokers disburses the loan in few days, 13% of them
disburses in few hours, wherein 67.4% of the pawnbrokers took week for the disbursement of
the loan.
48
Conclusion: In overall response 62.5% i.e. 50 out of 80 responded that disbursement of
the loan takes a week time. This may not be competitive enough with the current banks but
they have managed to find their own niche market.
11. Registration * default
Table 4.14
Crosstab
default Total
Low Medium
Registration
Yes Count 16 18 34
% within Registration 47.1% 52.9% 100.0%
No Count 19 27 46
% within Registration 41.3% 58.7% 100.0%
Total Count 35 45 80
% within Registration 43.8% 56.2% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Exact Sig. (2-
sided)
Exact Sig. (1-
sided)
Pearson Chi-Square .263a 1 .608
Continuity Correctionb .081 1 .776
Likelihood Ratio .263 1 .608
Fisher's Exact Test .653 .387
Linear-by-Linear
Association .260 1 .610
N of Valid Cases 80
a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 14.88.
b. Computed only for a 2x2 table
Sources: SPSS
52.9% of the registered Pawnbrokers responded the rate of borrower default was medium
while 47.1% of them responded that rate of default was low amongst the borrower. 58.7% of
the unregistered Pawnbrokers responded the rate of borrower default was medium while
41.3% of them responded that rate of default was low. The data is significant (0.0%) which is
indicated by chi-square test.
49
Conclusion: Rate of default was medium in overall of borrowing amongst the pawnbroker.
But medium was not defined by the Pawnbrokers.
12. Registration * Default Response
Table 4.15
Crosstab
DefaultResponse Total
Extend the
period
Others
Registration
Yes Count 26 8 34
% within Registration 76.5% 23.5% 100.0%
No Count 40 6 46
% within Registration 87.0% 13.0% 100.0%
Total Count 66 14 80
% within Registration 82.5% 17.5% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Exact Sig. (2-
sided)
Exact Sig. (1-
sided)
Pearson Chi-Square 1.489a 1 .222
Continuity Correctionb .851 1 .356
Likelihood Ratio 1.472 1 .225
Fisher's Exact Test .248 .178
Linear-by-Linear
Association 1.470 1 .225
N of Valid Cases 80
a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 5.95.
b. Computed only for a 2x2 table
Sources: SPSS
On the default of payment, 76.5% of the registered pawnbrokers responded they extend the
duration of repayment and 23.5% of the responded said they select other ways for the
recovery of money. But 87% of the unregistered pawnbroker responded they too extend the
duration for the repayment while 17.5% said they go for other ways for recovery of loan. The
50
other reflects that they may increase EMI or extend the period with increasing the interest
rate.
Conclusion: 82.5% of the responded extends the duration for repayment of the loan.
13. Registration * Reject proposal
Table 4.16
Crosstab
Rejectproposal Total
Highly disagree Disagree Not sure Agree Highly agree
Registration
Yes Count 2 9 14 6 3 34
% within Registration 5.9% 26.5% 41.2% 17.6% 8.8% 100.0%
No Count 5 12 19 6 4 46
% within Registration 10.9% 26.1% 41.3% 13.0% 8.7% 100.0%
Total Count 7 21 33 12 7 80
% within Registration 8.8% 26.2% 41.2% 15.0% 8.8% 100.0%
Sources: SPSS
Responding to the question ―Once the borrower defaults, rate the factors considered for
another lending‖ 26.4% of registered Pawnbrokers agrees that next proposal should be
rejected‖ while remaining 73.6% are either not sure or disagree for the rejection of proposal
while amongst unregistered Pawnbrokers 21.7% responded that they will reject the next
proposal and 78.3% were either not sure or won‘t reject the next proposal.
Conclusion: Overall response indicates that even having a default payment history of the
borrower the Pawnbroker will not opt for the complete rejection of the proposal. Because
cumulatively 76.2% of the responses say either they are not sure or disagree the upfront
rejection of proposal.
51
14. Registration * Accept
Table 4.17
Crosstab
Accept Total
Highly disagree Disagree Not sure Agree Highly agree
Registration
Yes Count 4 11 15 3 1 34
% within Registration 11.8% 32.4% 44.1% 8.8% 2.9% 100.0%
No Count 4 19 17 5 1 46
% within Registration 8.7% 41.3% 37.0% 10.9% 2.2% 100.0%
Total Count 8 30 32 8 2 80
% within Registration 10.0% 37.5% 40.0% 10.0% 2.5% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square .980a 4 .913
Likelihood Ratio .983 4 .912
Linear-by-Linear
Association .013 1 .910
N of Valid Cases 80
a. 6 cells (60.0%) have expected count less than 5. The minimum
expected count is .85.
Sources: SPSS
Responding to the question ―Once the borrower defaults, rate the factors considered for
another lending‖ 11.7% of registered Pawnbrokers agrees that next proposal should be
accepted without any condition‖ while remaining 88.3% are either not sure or disagree for the
acceptance of proposal without any condition while amongst unregistered Pawnbrokers
13.1% responded that they will accept the next proposal without any condition and 78.3%
were either not sure or disagree of accepting without any condition.
Conclusion: Overall responses of 84 respondents conclude that majority (87.5%) of the
Pawnbrokers disagrees accepting the proposal without any condition.
52
15. Registration * High interest rate
Table 4.18
Crosstab
Highinterest Total
Disagree Not sure Agree Highly agree
Registration
Yes Count 1 10 13 10 34
% within Registration 2.9% 29.4% 38.2% 29.4% 100.0%
No Count 4 12 17 13 46
% within Registration 8.7% 26.1% 37.0% 28.3% 100.0%
Total Count 5 22 30 23 80
% within Registration 6.2% 27.5% 37.5% 28.8% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 1.132a 3 .769
Likelihood Ratio 1.230 3 .746
Linear-by-Linear
Association .210 1 .647
N of Valid Cases 80
a. 2 cells (25.0%) have expected count less than 5. The minimum
expected count is 2.13.
Sources: SPSS
67.6% of the registered Pawnbrokers responded they agree for charging high interest rate to
the borrower having history of default while 32.4% responded they disagree for charging
higher interest Rate. 65.3% of unregistered broker agree of charging higher interest rate &
34.7% disagree of charging higher interest rate.
Conclusion: Out of 80 pawnbrokers 53 responded that they agree for charging higher interest
rate for next proposal in the case of history of default which is similar to the banks but they
might also reject the proposal upfront.
53
16. Registration * High collateral
Table 4.19
Crosstab
Highcollateral Total
Disagree Not sure Agree Highly agree
Registration
Yes Count 4 9 16 5 34
% within Registration 11.8% 26.5% 47.1% 14.7% 100.0%
No Count 5 18 14 9 46
% within Registration 10.9% 39.1% 30.4% 19.6% 100.0%
Total Count 9 27 30 14 80
% within Registration 11.2% 33.8% 37.5% 17.5% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 2.647a 3 .449
Likelihood Ratio 2.655 3 .448
Linear-by-Linear
Association .086 1 .770
N of Valid Cases 80
a. 1 cells (12.5%) have expected count less than 5. The minimum
expected count is 3.83.
Sources: SPSS
Responding to the question ―Once the borrower defaults, rate the factors considered for
another lending‖61.8% of registered Pawnbrokers agrees that high collateral should kept for
the next proposal‖ while remaining 38.2% are either not sure or disagree that high collateral
should kept for the next proposal while amongst unregistered Pawnbrokers 50% responded
that high collateral should kept for the next proposal and 50% were either not sure or disagree
for higher collateral for the next proposal. 12.5% in chi-square shows that the data is
significant.
Conclusion: From the overall response it can be concluded that collateral is an important
aspect of lending done by pawnbrokers even for the borrower with the default history. Since
54
55% of the overall responses said that higher collateral should be taken while considering the
proposal of borrower with history of default.
17. Registration * Guarantor Req.
Table 4.20
Crosstab
GuarantReq Total
Disagree Not sure Agree Highly agree
Registration
Yes Count 5 9 9 11 34
% within Registration 14.7% 26.5% 26.5% 32.4% 100.0%
No Count 4 14 19 9 46
% within Registration 8.7% 30.4% 41.3% 19.6% 100.0%
Total Count 9 23 28 20 80
% within Registration 11.2% 28.8% 35.0% 25.0% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 3.242a 3 .356
Likelihood Ratio 3.252 3 .354
Linear-by-Linear
Association .047 1 .828
N of Valid Cases 80
a. 1 cells (12.5%) have expected count less than 5. The minimum
expected count is 3.83.
Sources: SPSS
While lending to a borrower with default history, 58.9% of the registered Pawnbrokers said
they will look for a guarantor whereas 41.1% of them said they are either not sure or disagree
for asking a guarantor for the lending. Amongst unregistered Pawnbrokers approx. 61% of
them agree for need of guarantor while remaining 39% said either they are not sure or they
disagree for the need of guarantor for lending to borrower with default
55
Conclusion: Guarantor is required even in the banking sector even for the borrowers
having no history of default and probability of lending is very low to customer with default
history. But 60% of the overall response agreed on having guarantor in case of considering a
proposal with default history.
18. Registration * Lend less @ Normal rate
Table 4.21
Crosstab
LendlessNormalrat Total
Disagree Not sure Agree Highly agree 6.00
Registration
Yes Count 3 10 14 7 0 34
% within Registration 8.8% 29.4% 41.2% 20.6% 0.0% 100.0%
No Count 1 8 17 19 1 46
% within Registration 2.2% 17.4% 37.0% 41.3% 2.2% 100.0%
Total Count 4 18 31 26 1 80
% within Registration 5.0% 22.5% 38.8% 32.5% 1.2% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 6.395a 4 .172
Likelihood Ratio 6.893 4 .142
Linear-by-Linear
Association 6.131 1 .013
N of Valid Cases 80
a. 4 cells (40.0%) have expected count less than 5. The minimum
expected count is .43.
Sources: SPSS
61.8% of the registered Pawnbrokers said that lending to borrower of default history will only
be done for normal interest rate and the amount lend will be less while the remaining 38.2
said either they are not sure or disagree for lending less at normal rate. Amongst unregistered
pawnbrokers 78.3% agree for lending less at the normal rate while the 21.7% responded that
they disagree.
56
Conclusion: In the overall responses, 71.3% of the pawnbrokers said they will lend less with
the normal interest rate which shows the will not is taking risk of high lending. But they will
consider the proposal for the lending which is somewhat a conservative approach.
19. Registration * LSD.NR
Table 4.22
Crosstab
LSD.NR Total
Disagree Not sure Agree Highly agree
Registration
Yes Count 3 12 14 5 34
% within Registration 8.8% 35.3% 41.2% 14.7% 100.0%
No Count 1 17 17 11 46
% within Registration 2.2% 37.0% 37.0% 23.9% 100.0%
Total Count 4 29 31 16 80
% within Registration 5.0% 36.2% 38.8% 20.0% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 2.662a 3 .447
Likelihood Ratio 2.703 3 .440
Linear-by-Linear
Association 1.209 1 .271
N of Valid Cases 80
a. 2 cells (25.0%) have expected count less than 5. The minimum
expected count is 1.70.
Sources: SPSS
LSD@NR: Lending for short duration at normal interest rate. In the case of borrower with history of default, 19 out of 34 i.e. 55.9% of the total Registered
pawnbrokers agrees that lending can be done on normal rate but only for short duration, while
15 of them are either not sure or disagrees for the next lending activity to the borrower. But
28 out of 46 i.e. 60.9% of the unregistered pawnbroker agree agrees that lending can be done
on normal rate but only for short duration.
57
Conclusion: 47out of 80 of the overall Pawnbroker agree that the lending can be done even if
the history of default is with the borrower.
20. Registration * LHD.HR Table 4.23
Crosstab
LHD.HR Total
Disagree Not sure Agree Highly agree
Registration
Yes Count 4 7 13 10 34
% within Registration 11.8% 20.6% 38.2% 29.4% 100.0%
No Count 3 14 16 13 46
% within Registration 6.5% 30.4% 34.8% 28.3% 100.0%
Total Count 7 21 29 23 80
% within Registration 8.8% 26.2% 36.2% 28.8% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 1.410a 3 .703
Likelihood Ratio 1.418 3 .701
Linear-by-Linear
Association .001 1 .981
N of Valid Cases 80
a. 2 cells (25.0%) have expected count less than 5. The minimum
expected count is 2.98.
Sources: SPSS
LHD@HR : Lending for higher duration at higher interest rate.
In the case of borrower with history of default, 23 out of 34 i.e. 67.6% of the total Registered
pawnbrokers agrees that lending can be done for higher duration with higher interest rate,
while 11 of them are either not sure or disagrees for the next lending activity to the borrower.
But 29 out of 46 i.e. 63.1% of the unregistered pawnbroker agree with lending at higher
interest rate.
58
Conclusion: 52 out of 80 of the overall Pawnbroker agree that the lending can be done even
if the history of default is with the borrower.
21. Registration * LSA.SD
Table 4.24
Crosstab
LSA.SD Total
Disagree Not sure Agree Highly agree
Registration
Yes Count 1 12 11 10 34
% within Registration 2.9% 35.3% 32.4% 29.4% 100.0%
No Count 1 9 23 13 46
% within Registration 2.2% 19.6% 50.0% 28.3% 100.0%
Total Count 2 21 34 23 80
% within Registration 2.5% 26.2% 42.5% 28.8% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 3.330a 3 .343
Likelihood Ratio 3.344 3 .342
Linear-by-Linear
Association .772 1 .380
N of Valid Cases 80
a. 2 cells (25.0%) have expected count less than 5. The minimum
expected count is .85.
Sources: SPSS
LSA@SD: Lending small amount for short duration
If a borrower with a history of default borrows money, 21 registered pawnbrokers agrees that
the next lending should be of small amount for short durations only, while 36 out of 46 i.e.
more than 88% of unregistered pawnbrokers agree that lending should be of small amount
and for short duration.
59
Conclusion: 67 out of 80 Pawnbrokers agrees that the lending should be for small amount
and short duration. While if the proposal for borrowing with the borrower having history of
default goes to regulated bank, the customers will find it difficult to get the approval.
22. Registration * Satisfaction
Table 4.25
Crosstab
Satisfaction Total
Not
sure
somewhatsatisfied satisfied Highly
satisfied
43.00
Registration
Yes
Count 3 7 14 8 2 34
% within
Registration 8.8% 20.6% 41.2% 23.5% 5.9% 100.0%
No
Count 1 16 21 8 0 46
% within
Registration 2.2% 34.8% 45.7% 17.4% 0.0% 100.0%
Total
Count 4 23 35 16 2 80
% within
Registration 5.0% 28.8% 43.8% 20.0% 2.5% 100.0%
Sources: SPSS
Chi-Square Tests
Value df Asymp. Sig. (2-
sided)
Pearson Chi-Square 6.263a 4 .180
Likelihood Ratio 7.039 4 .134
Linear-by-Linear
Association 2.833 1 .092
N of Valid Cases 80
a. 4 cells (40.0%) have expected count less than 5. The minimum
expected count is .85.
Sources: SPSS
There is a mix response on the satisfaction of Pawnbrokers on the current state of business
where 35 of the total responses said they are satisfied while 16 of them are highly satisfied.
But more no. of unregistered Pawnbrokers are satisfied compared to registered brokers. This
concludes that on an avg. the Pawnbrokers are satisfied by the business.
60
Factor Analysis
Table 4.26.a
Correlation Matrix
Rejectproposal
Accept
Highinterest
Highcollateral
GuarantReq
LendlessNormalrat
LSD.NR
LHD.HR
LSA.SD
Correlation
Rejectproposal 1 0.27 -0.04 -0.139 -0.241 -0.157
0.009
0.059
-0.10
7
Accept 0.27 1 -0.091 0.044 -0.028 0.06 0.05
2 0.10
3
-0.08
4
Highinterest
-0.04 -
0.091
1 0.054 0.068 -0.028 -
0.023
0.01 -
0.195
Highcollateral
-0.139 0.04
4 0.054 1 0.128 0.059
0.031
-0.08
4
-0.30
6
GuarantReq
-0.241 -
0.028
0.068 0.128 1 -0.065 -
0.133
-0.11
3
-0.00
8
LendlessNormalrat
-0.157 0.06 -0.028 0.059 -0.065 1 0.12
6 0.24
3
-0.03
4
LSD.NR 0.009 0.05
2 -0.023 0.031 -0.133 0.126 1
0.078
-0.17
7
LHD.HR 0.059 0.10
3 0.01 -0.084 -0.113 0.243
0.078 1
-0.10
4
LSA.SD -0.107 -
0.084
-0.195 -0.306 -0.008 -0.034 -
0.177
-0.10
4 1
Sig. (1-tailed)
Rejectproposal
0.00
8 0.362 0.11 0.016 0.082
0.468
0.301
0.173
Accept 0.008 0.21 0.349 0.402 0.297 0.32
4 0.18
1 0.22
8
Highinterest
0.362 0.21 0.316 0.276 0.403 0.42 0.46
6 0.04
2
Highcollateral
0.11 0.34
9 0.316 0.128 0.303
0.392
0.23 0.00
3
GuarantReq
0.016 0.40
2 0.276 0.128 0.283
0.119
0.158
0.47
LendlessNormalrat
0.082 0.29
7 0.403 0.303 0.283
0.132
0.015
0.383
LSD.NR 0.468 0.32
4 0.42 0.392 0.119 0.132
0.247
0.058
LHD.HR 0.301 0.18
1 0.466 0.23 0.158 0.015
0.247
0.17
9
LSA.SD 0.173 0.22
8 0.042 0.003 0.47 0.383
0.058
0.179
Sources: SPSS
61
Interpretation: Bartlett's test is another indication of the strength of the relationship among
variables. This tests the null hypothesis that the correlation matrix is an identity matrix. An
identity matrix is a matrix in which all of the diagonal elements are 1 and all off diagonal
elements are 0, the Bartlett's test of sphericity is significant. That is, its associated
probability is less than 0.05. In fact, it is actually 0.000. This means that correlation matrix is
not an identity matrix.
Table 4.26.b
KMO and Bartlett's Test
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .593
Bartlett's Test of Sphericity
Approx. Chi-Square 43.683
df 36
Sig. .177
Sources: SPSS
Interpretation: It may be noted that the value of KMO statistics is .593, indicating that
factor analysis could be used for given set of data. The approx.. chi-square statistic from the
KMO & bartlett‘s Test is .593 with 36 degree of freedom.
Findings: The total number of variables consideration for the lending to borrower with
default history analysis includes nine. Bartlett‘s test of sphericity & Kaiser-Meyber
Olkin(KMO) measure of sampling adequacy were used to examine the appropriateness of
factor analysis.
62
Table 4.26.c
Component Score Coefficient Matrix
Component
1 2 3 4
Highinterest .014 .063 .074 -.698
Highcollateral -.054 -.142 .570 .111
GuarantReq -.267 -.321 .275 .159
LendlessNormalrat .515 -.304 .012 .189
LSD.NR .348 .056 .083 -.088
LHD.HR .478 .021 -.088 -.018
LSA.SD -.122 -.189 -.472 .264
Rejectproposal -.085 .607 .001 .027
Accept .009 .296 .294 .517
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
Component Scores.
Sources: SPSS
There are two factors that can be extracted from the data. The factor scores for the four
factors can be calculated as:
Factor score for 1st factor: .014*X1-0.54*X2-2.67*X3+.515*X4+.348*X5+.478*X6-
.122X7-.085X8+.009X9
Factor score for 2nd
factor: .063*X1-0.142*X2-.321*X3+.304*X4+.056*X5+.021*X6-
.189X7-.607X8+.296X9
Factor score for 3rd
factor: .074*X1-0.057*X2-.275*X3+.012*X4+.083*X5+.088*X6-
.472X7-.001X8+.294X9
Factor score for 4th
factor: .698*X1-0.111*X2-.159*X3+.189*X4+.088*X5+.018*X6-
.264X7-.027X8+.517X9
63
Table 4.26.d: Component Matrixa
Component
1 2 3 4
Rejectproposal .525 -.394 -.548 -.058
Accept .522 -.077 -.280 .554
Highinterest -.073 .414 -.214 -.654
Highcollateral -.017 .699 -.203 .348
GuarantReq -.510 .351 -.069 .348
LendlessNormalrat .325 .265 .685 .153
LSD.NR .451 .228 .173 -.118
LHD.HR .532 .049 .408 -.128
LSA.SD -.396 -.638 .349 .129
Extraction Method: Principal Component Analysis.
a. 4 components extracted.
Sources: SPSS
Interpretation: The correlation coefficient between factor score and the variables included
in the study is called factor loading and is shown in component matrix.
Column 1: This is the correlation between the factor score for factor 1 and each variable. For
eg:
.525 is the correlation between the factor score column for factor 1 and the rejection
of the proposal.
-.073 is the correlation between the factor score column for factor 1 and higher
interest rate.
.325 is the correlation between the factor score column for factor 1 and lend less at the
normal rate.
0.532 is the correlation between the factor score column for factor 1 and lend for high
duration at the higher interest rate
.451 is the correlation between the factor score column for factor 1 and lend for short
duration at the normal interest rate.
-.510 is the correlation between the factor score column for factor 1 and guarantor
required.
64
The factor loading are used to compute eigenvalues for each factors.
Table 4.26.e
Initial Extraction
Rejectproposal 1.000 .734
Accept 1.000 .663
Highinterest 1.000 .651
Highcollateral 1.000 .651
GuarantReq 1.000 .509
LendlessNormalrat 1.000 .669
LSD.NR 1.000 .299
LHD.HR 1.000 .468
LSA.SD 1.000 .703
Extraction Method: Principal Component
Analysis.
Sources: SPSS
Communalities Interpretation: The next item from the output is a table of communalities
which shows how much of the variance in the variables has been accounted for by the
extracted factors. For instance 65.1 % of the variance or information content of high interest
rate is explained by four factors while 77.71% of the variance in liquidity or information
content is explained by four factors
65
Table 4.26.f
Total Variance Explained
Component Initial Eigenvalues Extraction Sums of Squared
Loadings
Rotation Sums of Squared
Loadings
Total % of
Variance
Cumulative
%
Total % of
Variance
Cumulative
%
Total % of
Variance
Cumulative
%
1 1.562 17.361 17.361 1.562 17.361 17.361 1.423 15.816 15.816
2 1.475 16.394 33.755 1.475 16.394 33.755 1.415 15.717 31.533
3 1.258 13.978 47.733 1.258 13.978 47.733 1.389 15.438 46.970
4 1.052 11.684 59.417 1.052 11.684 59.417 1.120 12.446 59.417
5 .988 10.977 70.394
6 .807 8.968 79.362
7 .738 8.205 87.567
8 .599 6.660 94.227
9 .520 5.773 100.000
Extraction Method: Principal Component Analysis.
Sources: SPSS
Interpretation: In the analysis we retain only those components with eigen values greater
than1. From the above table, it can be noted that there are four factors with eigen value
greater than one.
The percentage of variance explained by each of the factor by using eigen value. As there are
nine variables, the total variance equals to nine.
Percentage of total variation explained by factor 1 is 17.361%; by factor 2 is 16.394%: by
factor 3 is 13.978% and by factor 4 is 11.684%.
Total variation explained by four factors put together = 59.417%
66
Table 4.26.g
Rotated Component Matrixa
Component
1 2 3 4
Rejectproposal -.048 .851 -.023 .081
Accept .099 .460 .340 .571
Highinterest .002 .026 .186 -.785
Highcollateral -.037 -.211 .777 .041
GuarantReq -.386 -.478 .347 .104
LendlessNormalrat .707 -.352 .048 .207
LSD.NR .505 .111 .156 -.088
LHD.HR .674 .086 -.077 .015
LSA.SD -.227 -.246 -.694 .330
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 17 iterations.
Sources: SPSS
The purpose of rotation is to have the factor loading in such a way that they are either close to
zero or -1 or +1.
There is no rule to decide a cut-off point, let have a cut-off = 0.5
Lend short duration @normal rate, Lend high duration @ higher interest rate & Lend
less @ normal interest rate are having factor loading above 0.5 for factor 1,
Reject the proposal is having factor loading above 0.5 for factor 2
High collateral is having factor loading above 0.5 for factor3
High interest rate is having factor loading above 0.5 for factor 4
Thus a variable which appears in one factor does not appear in other.
67
CHAPTER VI
FINDINGS, CONCLUSION AND SUGGESTIONS
68
Findings
1. The lending done by the pawnbrokers is different on various aspects than the lending
done by the banks in India.
2. Majority of the amount lends in the range of 40000-50000 which shows that these
brokers have the market where the banks either don‘t have a reach or they don‘t focus
on such lending. While banks provide credit cards where depending upon the
customer the credit of lakhs can be taken but customers should have prerequisites for
that. But Pawnbrokers don‘t have such prerequisites such have a minimum amount of
balance in account etc.
3. The amount of paper works involved in such lending is very less as compared to
banks, which is considered hassle free to the borrowers.
4. Majority of the customers to the pawnbrokers are of medium or low income group.
People involved in the business in unorganised sector are the customers for the
pawnbrokers.
5. Generally banks takes land, building and other property as collateral where gold loan
is product of the banks but pawnbrokers majority of the lending is done on gold as a
collateral. While the valuation of the gold depends on the benchmark or the prevailing
market price was not disclosed.
6. In India, banks have fixed rate for deposits and floating rate for lending but in the
research it was found that majority of the lending had fixed interest rate, and floating
interest rate followed only in case of default, extending the duration of repayment etc.
7. In banks the interest rate is predetermined but may vary from bank to bank, but the
factor which may lead to variation on interest rate were credit worthiness, collateral,
guarantors etc. This shows that product offering is highly customized by pawnbrokers.
8. ―Credit appraisal‖ is term which is a procedure of evaluating the borrower on various
aspects before lending which involves valuation of collateral, identification of
customers, history of default & other documentation. Due to which disbursement of
loan can take even more than a week. But in case of Pawnbrokers disbursement of
loan varies from few hours to a week or so which reflects aggressive lending
behaviour.
69
CONCLUSION
The Study was of the opinion that given the framework and functioning of the organized
banking system, and the attributes of small borrowers and their typical needs, there is bound
to be a disconnect between the two. The home-grown bankers are necessary to fill this gap.
Thus, the drive of the recommendations of the Study was that home-grown bankers had a
niche role to play and it would be advantageous to harness the synergies between them and
the organized banking system. To this end, the study suggests linkage between small
borrowers and pawn brokers and also concludes how they have changed their business
strategy with change in economic environment and differentiating their business strategy by
extensively focussing on service quality & product customization, and recommended that
commercial banks could finance home-grown bankers and Reserve Bank could extend
refinance to the banks.
70
SUGGESTIONS
In pawn broking, paper work is very less and the most of the lending are on the
borrower‘s credit worthiness and other personal know-how. Few paper work
regarding securitization should be involved
A credit appraisal procedure should be in the business because sometimes after
lending the amount credit default of borrower comes in to being and the nothing can
be done until the borrower defaults in the current lending.
For collateral, property or other assets should be considered apart from taking gold as
collateral.
A working paper of RBI stated that it was found that pawn brokers borrow the money
on the collateral which are already pledged to them by borrower. So this kind of
activities should be avoided.
Pawn broker should get themselves registered which would provide them regulatory
environment resulting to ease of business.
Many cases of channelizing counterfeit notes through pawn brokers have been
registered. As the customer to pawn brokers are small vendors and less educated
peoples. These kind of activities should be avoided which can be put an end by
entering into regulatory environment.
Pawn brokers should have proper have arrangement of detecting fake gold and should
avoid using at least a couple of methods to check originality of gold, because with the
volatility and high price of the gold, failing to detect just a small variation in
composition can be expensive and also simple task of distinguishing between gold
plating and solid gold has become a challenges counterfeit has become more adept.
71
BIBLIOGRAPHY
72
Bibliography
(n.d.). Retrieved december Tuesday, 2014, from Reserve bank of India:
http://www.rbi.org.in/home.aspx
(1965). THE KARNATAKA MONEY-LENDER RULES,1965. Banagalore: Govt. of Karnataka.
(2013). Persistence of Informal Credit in Rural India: Evidence from ‘All-India Debt. delhi: RBI.
Asutay, M. (2012). Frontier of Islamic Economics and Finance: New Challenges. Asian & African area
studies, 21.
Athaide, M. (2013). Lending strategies to small businesses in India. 24.
Banking. (n.d.). Retrieved November Monday, 2014, from INDSTAT:
http://www.indiastat.com/table/banksandfinancialinstitutions/3/bankofficebranches2012/1
6984/764712/data.aspx
Bos, S. A. (2014). Rationality in the Consumer Credit Market:Choosing between alternative and
mainstream credit. Ios, 49.
department of Cooperation, Govt. of Karnataka. (n.d.). Retrieved January Tuesday, 2015, from
SAHAKARA SINDHU: http://sahakara.kar.gov.in/
Doris, S. A. (2011). A STUDY ON ISLAMIC PAWN BROKING AWARENESS. KEDAH: ICBER.
INDSTAT. (n.d.). Retrieved 11 monday, 2014, from
http://www.indiastat.com/table/banksandfinancialinstitutions/3/bankofficebranches2012/1
6984/764712/data.aspx
Karnataka, G. o. (1965). THE KARNATAKA MONEY-LENDERS RULES, 1965. Bangalore.
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Kotak Mahindra Bank. (n.d.). Retrieved February wednesday, 2014, from
http://www.kotak.com/personal-banking/loans/personal-loans.html
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RBI. (2013). Report on working group study the Issues related to gold imports and gold Loans NBFCs
in India. RBI.
RBI. (2013). Report on working group study the issues related to gold imports and gold Loans NBFCx
in India. RBI.
S.A, D. (2011). A study of islamic pawn broking awareness. ICBER.
S.P, K. (2012-2013). Pawnshops, Behavioural economics & Self-regulation. Behavioural Economics,
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Sammartino, D. A. (2012). A geographically isolated economy's experience of the international
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Sinnakkannu, C. W. (2011). Ar- Rahnu : Opportunities and Challenges in Malaysia. 11.
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74
Appendix
75
QUESTIONNAIRE
Gender
o Male
o Female
Age
o 20-30
o 30-40
o 40-50
o 50-60
o 60 & Above
Educational Level
o Primary Education
o Secondary Education
o Under Graduate
o Postgraduate
Are registered under “Karnataka Pawnbrokers act, 1965” or “Money Lenders act”?
o Yes
o No
Type of customer
o Low Income group
o Medium Income Group
o High Income group
What amount of credit you provide to customers?
o 5000-10000
o 10000-20000
o 20000-30000
o 30000-40000
o 40000-50000
o 50000 and above
76
Collateral taken
o Gold Jewellery
o Property
o Other assets
Interest rate charged
o Fixed
o Floating
o Fixed and Floating
Frequency of borrowing
o Low
o Medium
o High
Interest calculated
o Simple Interest
o Compound interest
Average duration of loan provided (in days)
o 0-7
o 7-15
o 15-30
o 30 & above
Your interest rate depends upon
o Credit worthiness of customer
o Collateral
o Personal know-how
o Market condition
o Guarantor
o Flat rate offered to all
77
What per cent of the value of asset, loan is provided
o >50
o >60
o >70
o >80
o 80 and above
Time taken for Loan disbursement
o Few hours
o Days
o Week
o Month
Rate of default
o Low
o Medium
o High
In the case of default, you
o Extend the period of Repayment
o Take Possession of the asset
o Sell the asset
o Others
Rate on factor important on which interest rate depends
1 2 3 4 5
Credit worthiness of customer
Collateral
Credit Amount
Personal know-how
Market cond. Duration
Guarantor
Frequency of Borrowing
78
Once the borrower defaults, rate the factors considered for another lending
1 2 3 4 5
Reject the Proposal
Accept without any condition
Higher Interest Rate for any
condition
Guarantor required
High collateral
Lend lesser amount @ normal
rate
Lend for shorter duration @
normal rate
Lend for higher duration @
higher interest rate
Lend small amount with short
duration only
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