Shariah Lenders Scramble for Golden Opportunity in the Pawn Shop Market
Ardian Wibisono & Dion Bisara
The nation’s Shariah banks are catching gold fever as more lenders launch pawn shop services to allow owners of the precious metal quick access to cash.
State-owned pawn shop Perum Pegadaian still dominates the gold pawn business, known by the Shariah term Rahn, but the domestic banks are now scrambling to get a slice of the estimated Rp 75 trillion ($8.25 billion) a year market. At the same time, a new method of gold investment called “gold farming” is boosting the size of the market.
PT Bank Syariah Mandiri, PT Bank Syariah Mega Indonesia and PT Bank Negara Indonesia Syariah have been offering rahn for several years. They have more recently been joined by PT Bank Rakyat Indonesia Syariah, which launched a Rahn service last April, and PT Bank CIMB Niaga Syariah which launched the service last month. Meanwhile, PT Bank Danamom Syariah is set to offer Rahn soon.
Gold prices have seen a historic climb during the global recession as investors sought a safe haven. According to Reuters, the price hit a record $1,248.15 an ounce last week on fears over Europe’s debt crisis.
According to Adiwarman Karim, from Shariah consultancy firm Karim Consulting, the Rahn business is set to be a major boon to Shariah banks.
Rahn customers deposit gold at a pawn shop or bank and receive 90 percent of the value of the gold, and can buy back the collateral at full price at a later date. In return they pay a small fee. Shariah banks have been undercutting Perum Pegadaian by offering cheaper fees.
“It only takes 15 minutes to cash your gold,” said Ari Purwandono, a director at PT Bank Rakyat Indonesia Syariah. “It is far simpler than applying for a loan.
“Traditionally, Indonesians invest their savings in gold jewelry and they have an emotional tie. So when they need money they tend to pawn it, not sell it, so they can get it back.”
BRI Syariah has done more than Rp 100 billion of Rahn business since it launched its service in April, Ari said.
Fueling the growth of Rahn is a method called gold farming, which independent investor Rudi Iskandar invented a year ago and has since been popularizing through investment seminars.
Gold farmers use the money they get from pawning their gold to buy more gold, which they then pawn to buy yet more gold and so on. If the gold price rises, the gold farmers then buy back the gold and sell it at a profit. The method essentially allows a gold speculator to buy a lot more gold at only a small additional outlay.
BRI Syariah has sought to take advantage of the gold farming trend by paying Rudi to promote the new investment.
The bank estimates that about 20 percent of its Rahn business currently comes from gold farmers. Gold farmers typically pawn gold bars as opposed to regular customers who tend to pawn jewelry, so BRI Syariah is offering cheaper fees to deposit bars.
Nahar Nahrowi, a member of the National Shariah Council’s (DSN) Insurance and Business Working Group, said gold farming did not violate Shariah law.
PT Bank CIMB Niaga Syariah is currently offering Rahn services at five of its branches and is planning to be offering it at 30 outlets by the end of the year.
PT Bank CIMB Niaga president director Arwin Rasyid was upbeat about the Rahn market’s growth prospects.
“We estimated the current market for the gold pawn business in Indonesia is Rp 75 trillion and it is still mostly controlled by Perum Pegadaian,” he said. “That does not include people who pawn their gold at jewelry shops. So the market is very big.”
Perum Pegadaian director Wasis Djuhar said he wasn’t worried by competition. The market is very large, risky and requires a high level of expertise because some customers try to pass other metals off as gold or to claim their gold is of a higher quality than it actually is, he said.