During the depth of the credit crisis in Russia last year, when banks were charging exorbitant interest rates for loans, some businessmen raised cash by less conventional means — pawnshops.
With interest rates of 10 to 15 percent per month beating banks' rates of 25 percent, pawnshops proved to be the only source of liquidity and credit for many individuals and small companies, the Central Bank said in a report released this week.
A pawnshop would lend up to $50,000 against a luxury wristwatch as collateral during the most difficult months as businesses were desparate for cash, said Lyudmila Sevtsova, director of Novoye Vremya, a pawnshop that deals exclusively with expensive Swiss watches.
Once the loan, including interest, was paid back, the item would be handed back to the individual.
Sevtsova said her group saw an unprecedented influx of clients between September 2008 and mid-2009.
"Pawning is easy because you get the money on the spot and you don't need any documents," Sevtsova said.
But with the easing of the credit crunch, the number of clients has fallen by 30 percent from last year's peak, she said.
The number of pawnshops increased by 25 percent in 2009 to about 5,000, according to the Central Bank, which acknowledged that an 18 percent rise in lending by pawnshops somewhat lessened the threat of a full-fledged credit freeze last year.
Pawnshops performed strongly last year because Russia faced the downturn with "a poorly diversified and underdeveloped set of lending instruments," said Yaroslav Lissovolik, chief economist of Deutsche Bank in Russia.
Russia's banking sector was hit hard by the global downturn. Fearing a rise in non-performing loans, most banks froze lending in the fall of 2008 and have not since boosted it to levels anywhere close to the pre-crisis lending high.
Copyright 2010 AP News
