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Free market economists loathe monopolies, particularly when
they are backed by legislation.
Apart from the potential for stifling commerce, monopolies can create
an arrogant and often idle management structure, smug in the knowledge
that their indifference to customers will never boomerang.
This is the common theory, and it seems logical, though it is not the
case in Indonesia where a government monopoly in the finance market is
being run like a private bank. It is as though the hounds of robust
competition are baying at the company's door.
Although the monopoly law has been in place for almost five years, a
state-owned pawnshop, PU Pegadaian, still holds the exclusive right to
operate in the pawn industry.
If its monopoly was removed, the Finance Ministry-owned company would
remain in a strong position to fight off opponents, Pegadaian's Malang
branch head, Budiyono, said.
Budiyono is a veteran of the great 1990s shake up, when new management
dragged Pegadaian into the modern world.
"It was difficult and there was much resistance," he said. "But we were
able to turn attitudes around. Cultural change is not easy, but here's
proof that it can be done. We are planning ahead. We have a good brand
and are trusted."
If your idea of the pawn industry resembles a dickensian, grimy shop
situated in a street of many odors and run by voracious misers, then
prepare for a pleasant surprise.
There are more than 850 Pegadaian branches spread across the
archipelago. The company's logo is not the three balls -- the hallmark
of the Italian Lombard Bank that introduced pawnbroking into Britain --
but the scales of justice. This symbol is used in the British legal
system to represent the courts of law.
Pegadaian's motto is, "Overcoming problems without problems," and its
offices are usually bright and cheery, painted light green and white.
The ghastly trappings of the government bureaucracy -- bored, rude
staff watching television, filthy and crowded surroundings, unnecessary
paperwork and 15 watt globes -- are absent. This outfit could teach the
private sector a few things about projecting a positive corporate
image. The staff seem genuinely friendly and all employees, even the
backroom bosses, wear badges proclaiming, "Our customers are always
number one," as though a rival office had recently opened next door.
Yet those using the company's service -- at last count there were more
than 12 million -- have little choice in the matter.
If you need cash in a flash you can try your local loan shark, a gold
shop that might buy your heirlooms for a pittance, the banks or
Pegadaian.
"Our main competitor is Bank Danamon, which offers a product called
Danamon Simpan Pinjam (DSP) for the bottom-end of the market," said
Pegadaian operations manager Swasono Widodo. "But the paperwork and
procedures take time and many people feel uncomfortable in big
buildings. Most Indonesians are not bank-minded.
"Our system is different, it's friendly and fast. We strive to ensure
that you can be in and out with money in your purse within 15 minutes.
"We're also open on Saturdays and in some places, such as Manado, we
operate at night. You don't have to open an account. The banks can't
possibly match us."
Clearly this makes for good business. Widodo said last year the company
made a Rp 500 billion (about US$55 million) profit, and that its growth
rate was astonishing -- nudging 40 percent in the past two years.
Non-performing loans were growing at around 5 per cent.
In the branch visited by The Jakarta Post, middle-aged and elderly
women offering gold and jewelry as collateral half-filled the waiting
room. Doubtless some feel shame at having to use the service, but there
were no downcast eyes as in Western pawnshops.
Adverts for the company's other products and services showing jolly
folk with white dentures, the sort who normally feature in shampoo ads,
gave the place a friendly feel. Unlike in banks, where edgy guards
think every customer is planning a heist, security was unobtrusive.
Widodo said customers were asked for receipts to prove they owned the
pledge. However, few people kept such documents so staff had to make an
assessment on the customer's honesty. He said using Pegadaian to
launder stolen goods was rare and not a problem as in the U.S. and
Australia.
Valuations are done on the spot and interest is charged at 1.6 percent
every 15 days. Business increases by about 20 per cent during Idul
Fitri and Christmas, when cash is needed for gift-giving, and at the
start of the school year.
Maximum loan periods are four months, with a ceiling of Rp 900,000 (US
$100). The pledge can be sold if it is not redeemed five months after
deposit.
Widodo said most customers pawn gold, while less than 20 percent offer
electronic goods, computers and cameras. He said many people do not
return for their goods.
For those not wishing to spend big, loaned items for resale vary in
quality. A shabby five-year-old radio-recorder priced at Rp 550,000
(US$ 60) sat on the shop counter, far from being the best-buy. Next to
it was a dearer, glitzy new model with the latest bells and whistles.
Many branches now offer an Islamic Syariah service, in which an
administration fee is charged and a complex tariff formula used to
avoid usury. This service was introduced in 2004 and has so far
attracted only 250,000 customers.
The company also offers a microcredit service that allows small
entrepreneurs to borrow funds to start an enterprise or upgrade
equipment. All that is required is a certificate proving ownership of
the property in question, such as a house or motor vehicle. The
interest rate varies between 1 and 1.6 percent per month and the
maximum loan is Rp 200 million (US$22,000).
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