Factors for survival of pawn broking in india

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

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CHAPTER VI

FINDINGS, CONCLUSION AND SUGGESTIONS

5.1 FINDINGS 57

5.2 CONCLUSION 58

5.3 SUGGESTIONS 59

BIBLIOGRAPHY 60

APPENDIX 62

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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)

27

27

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

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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

15

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

16

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

23

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


Total Count 29 51 80


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


sided)



Linear-by-Linear


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


No Count 21 25 46




Sources: SPSS

Chi-Square Tests


sided)

Exact Sig. (2-

sided)

Exact Sig. (1-

sided)

Pearson Chi-Square .159a 1 .690


Likelihood Ratio .159 1 .690


Linear-by-Linear

Association .157 1 .692

N of Valid Cases 80



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


Total Count 48 2 30 80


Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80


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


No Count 5 26 15 46




Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80



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


No Count 31 15 46




Sources: SPSS

Chi-Square Tests


sided)

Exact Sig. (2-

sided)

Exact Sig. (1-

sided)


Continuity Correctionb 1.792 1 .181



Linear-by-Linear


N of Valid Cases 80



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


No Count 11 35 46




Sources: SPSS

Chi-Square Tests


sided)

Exact Sig. (2-

sided)

Exact Sig. (1-

sided)





Linear-by-Linear


N of Valid Cases 80



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


No Count 22 17 7 46




Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80



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



No Count 15 26 5 46




Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80



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



No Count 6 9 31 46




Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80



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


No Count 19 27 46




Sources: SPSS

Chi-Square Tests


sided)

Exact Sig. (2-

sided)

Exact Sig. (1-

sided)





Linear-by-Linear


N of Valid Cases 80



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


No Count 40 6 46




Sources: SPSS

Chi-Square Tests


sided)

Exact Sig. (2-

sided)

Exact Sig. (1-

sided)





Linear-by-Linear


N of Valid Cases 80



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


Total Count 7 21 33 12 7 80


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


No Count 4 19 17 5 1 46


Total Count 8 30 32 8 2 80


Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80



Sources: SPSS


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


Total Count 5 22 30 23 80


Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80



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


Registration

Yes Count 4 9 16 5 34


No Count 5 18 14 9 46




Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80



Sources: SPSS


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


Registration

Yes Count 5 9 9 11 34


No Count 4 14 19 9 46




Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80



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


No Count 1 8 17 19 1 46


Total Count 4 18 31 26 1 80


Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80



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


Registration

Yes Count 3 12 14 5 34


No Count 1 17 17 11 46




Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80



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


Registration

Yes Count 4 7 13 10 34


No Count 3 14 16 13 46




Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80



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


Registration

Yes Count 1 12 11 10 34


No Count 1 9 23 13 46




Sources: SPSS

Chi-Square Tests


sided)



Linear-by-Linear


N of Valid Cases 80



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


sided)



Linear-by-Linear


N of Valid Cases 80



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


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


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


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.

Karnataka, G. o. (1965). THE KARNATAKA MONEY-LENDERS RULES, 1965. Bangalore.

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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,

28.

Sammartino, D. A. (2012). A geographically isolated economy's experience of the international

expansion of retailing. 23.

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

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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

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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

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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

Factors for survival of pawn broking in india

Economy & Finance

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