I extend my appreciation to the Chairman and Executive Secretary of the Law Reform Commission for the opportunity given me to participate and speak at this Stakeholders Meeting on the Pawnbrokers Bill 2021. My duty here is not to appraise or review the Bill, but to offer my insights into the service provided by pawnbroking business.
In its crudest form, pawning is the act of raising short-term loan or credit by trading or pledging your personal movable personal effects or goods such as jewelry, electronics, heirlooms, paintings, furniture items or equipment etc. as security to the creditor at a price agreed with opportunity to repurchase same or redeem same at a later date with an agreed markup. It is based on a sale of goods concept but with an opportunity to repurchase the item over a short period of time at an agreed price. The trade is one of the oldest known to humanity, existing since 2,000 to 3,000 years ago in China and Greece. A pawnbroker includes every person who carries on the business of taking goods in pawn. The article pawned is the pledge and the person delivering the article for pawn to a pawnbroker is known as a Pawner.
The business as a simple credit or loan structure has not changed over the centuries or years and in that form it serves the greatest number of people who require personal credit or loans to meet urgent personal needs. It is useful particularly to petty traders, artisans, peasant farmers, etc. just to meet simple basic daily needs or what you refer to as providing a safety net for millions and to give succor to the economically vulnerable, unbanked or under-banked people to enable them do their business, keep electricity on, make rent payment, school fees or healthcare costs for family to the mundane of putting food on the table or fuelling your car. The list is not exhaustive.
In advanced countries, the benefits of the business both to the economy and the citizens is immeasurable. Currently in the US, the industry revenue is $14.5b with over 11,000 pawnbrokers serving over 30 million customers according to Pawn Industry statistics published by National Pawnbrokers Association USA. In the UK, the annual turnover market size is £450m with 1,058 pawn shops employing over 4,555 people and serving 7.5 million customers. In South Africa, there are 1,500 pawn shops and with that you can imagine the turnover size, number of people it employs and the nettable tax to the government.
My question is where are we in Lagos?
The business formally existed in Nigeria from the early 1900 under the Federal Pawnbrokers Act of 1917. It was later devolved and localized to the regions and later the states because the practice/trade was recognised as personal and should be localized. Some of us who are really interested in enhancing the capacity of our citizens to have access to quick uncomplicated small short term credit through the pawnbroking model dusted the Laws and discovered that indeed Lagos State has on its books a Law that can be very useful in this regard called Pawn Brokers Laws of Lagos State Cap P2, Laws of Lagos State 2015 that allows pawnbroking business.
The current practice in Lagos is that the business runs at an informal sub-optimal level without any regulatory framework. I came to the conclusion that the legal or regulatory framework is non-existent and the service is not regulated because the State has no idea what is happening at that level. Several restrictions (operational and statutory inhibitions) inherent in the Law explains why pawning as a very useful and flexible credit tool was stifled out and it eventually disappeared as a veritable credit tool for the socially and economically disadvantaged and vulnerable people in the society. Examples of such inhibitions are:
- The law does not apply if the loan to be raised is over N10,000.00
- Sale of any unredeemed pledge over N00 value must be by auction in compliance with the law.
- Obtain Magistrate Certificate as pre-condition for licenses which is under the power of Local Government Authority to grant at N2,500.00
- Currently regulatory licensing regime and framework guiding the operation of the business is left to Local Governments with mandates over the operators within each Local Government Area jurisdiction. That in itself is cumbersome and onerous for operators, if an operator has to deal with numerous Local Government Areas to open shops across the State. Thus due to such complications, the trade was left behind and eventually people forgot that such business existed as it stopped being useful, if for example you cannot do transactions over N10,000.00.
Meanwhile, our formal credit structures and financial regulatory institutions have tried severally and failed to enable the raising of short term personal credit by citizens at the lower end of the ladder in an orderly and simple process with their worldly possessions. We tried Finance Companies, Community Banks and now MFBs, but the nature of those institutions is always formal, highly over-regulated with the antecedent need for credit checks, approvals, security/collateral registration, consents, requirements of filing returns etc, thus making it convoluted and tedious for persons seeking small personal loans.
The reality is that the business that could bridge the gap is more or less now obsolete because the enabling Law is not in line with current realities in terms of structure or social and economic practicability. The society left the law behind and simply moved on. It was so bad that in 2020, I went from the Ministry of Justice to the Ministry of Finance to the Ministry of Home Affairs to find out which Ministry operates the Pawnbrokers Law. They all disowned the Law which is part of the compendium of Lagos State Laws. I went to a few Local Government Areas who are authorised to grant licenses under the Lagos State Laws and no awareness exists likewise. I discovered that the law had no father or mother and completely disowned. It is an orphan. Therefore, technically to Lagos State, the business does not exist.
Because it is impracticable to do the business in its current form regulatory wise, we all agree it needs reform – the indefatigable team at the Law Reform Commission looked at it and they too have decided that indeed the law needs reform. In fact it needs total overhaul. Mind you, Lagos State has revised its laws at least as far as I know 3 times if not more since 1999 thus missing the opportunity to empower businesses and people or to explore the opportunity to add to the Internally Generated Revenue capacity of the State through the instrumentality of the Law regulating Pawnbroking business.
I have perused the Draft Bill and it is work in progress. But I know my Chairman and his team, he will deliver a well-rounded reformed Bill that will best serve all the stakeholders from the pawnbroker, to the customer citizenry, to the government. It is not my job here today to comment on it. In as much as I align myself with what they have done so far, I ask for two principles to be considered in driving the process, and it is that:
- The slant of the draft Bill should be that Pawnbrokers provide a crucial service for people that do not have access to short term financing through the existing financial institutions.
- The service should be encouraged and not stifled with onerous fees and regulatory requirements.
It will be the success story of all stakeholders if it gets to the House of Assembly and passed. The benefits to the citizens of Lagos State, the business owners and the State are as follows:
People
- No credit check is required in pawn transactions and it never impacts negatively a customer’s credit rating.
- Help families through challenging times by providing non-recourse, small amount short term loans when they have nowhere else to turn.
- Possession of the article by the Pawnbroker is security. The structure of the business under the statute/regulation is consistent with the principle that the security of the pawned article is its possession. Once possession of the pawned article is delivered to the Pawnbroker, there is no need for any further registration of the security or necessity for coercive security enforcement.
Pawnbrokers
- The formality involved in the transaction is less rigorous, non-technical, easy to comprehend, cheaper to create and most importantly, the security is easy to realize in the event of default. This accounts for the rule that a pawn may only be created over borrower’s chattels. Typically, it entails personal effects like jewelries, clothes, domestic goods or equipment as security.
Lagos State
- Provide local law enforcement with data on all transactions on a daily basis – this will address or reduce drastically the pawning or handling of stolen goods.
- Creation of employment for the citizens of the State in terms of staff requirements at pawn shops.
- Increased internally generated revenue capacity and profile of Lagos State.
Thank you.
Oluwole Koya
Partner
