Pawnbrokers lent money for cheap pawns

Even if you have heard of the word “pawnshop,” few of you may know exactly what kind of business they have. In short, they are financial institutions that lend money, the customers of which are mostly general citizens, unlike banks that mainly provide finance to companies.

Many of you might imagine consumer financing with this explanation. The big difference, however, is that consumer financing companies lend money without any security or guarantor, whereas pawnbrokers take collateral to lend the amount for its value. Pawnbrokers call such collateral “pawns.”

Needing to pawn may sound like too much trouble, but on the contrary, they can be a great advantage.

For example, if you borrow money from a consumer financing company and cannot give a refund by the due date, they may put pressure on you or, in some cases, they may take you to court.

However, if you borrow money from a pawnbroker by providing a pawn and cannot pay it back, the pawn you have given will be confiscated, which is called foreclosure, and that is the end of the story. There will be no postcards or phone calls as reminders, and no visit by debt collectors. In other words, there is little risk when you cannot pay the money back.

You may think that this makes sense because you deposit collateral called a pawn; however, it is common that security to borrow money is expensive, such as land and cars.

Although today’s pawnshops also take name-brand products and precious metal goods as pawns, they used to take cheap articles such as clothes and commodities as pawns as a matter of fact. Basically, it is safe to say that pawnshops used to be financial institutions truly for ordinary people.

This system of pawnshops is said to have existed since around the Kamakura era. In particular, for the poor that lived hand to mouth, the system was absolutely essential.

If, for instance, they were too sick to work for several days or unable to work owing to a long spell of rain, those people would immediately have trouble making a living. In such a case, they brought cheap personal belongings to a pawnshop to borrow cash, which tided them over through an emergency.

The time limit when a pawn becomes confiscated depends on the pawn. Although it is generally six months, it can be three months for a short-term cheap pawn and one to three years for an expensive pawn. If you work and save money during such a period and return the money with interest, the pawn you deposited will be returned.

As a system to convert personal belongings into cash in such a way, we now have secondhand shops, flea markets, and flea market apps on the Internet as well.

However, selling goods using those systems means that you give up the item. Needless to say, if they are really unnecessary items, that would be fine.

On the other hand, if you need cash now and do not want to give up your favorite items, the pawnshop is effective. This was also a great advantage of pawnshops when ordinary people did not have any spare or unnecessary goods around them.

Pawnshops supported ordinary people’s lives during the pandemic a century ago

These pawnshops contributed significantly to society when the Spanish Flu broke out in 1918. The situation was very similar to the current one with COVID-19, where people had a curfew and were forced to suspend business one after another.

Moreover, in those times, there was hardly any social security system like what we have now. Pawnshops surely played a significant role, especially for impoverished people to survive the pandemic.

According to data on the use of pawnshops around 1920, about 90% of pawns were clothes.

In particular, in those days, kimonos, which were still popular, were not thrown away to be replaced by new ones when they became a little worn as we do with modern clothes, and it was common to wear them for generations and to re-tailor them. Therefore, clothes were adequate as pawns.

Although, as a matter of course, people could not borrow a large amount of money with them, they only needed the amount that would tide them over during a crisis, and allow them to work and redeem them later. In fact, foreclosure happened for approximately 10% of pawns in those days, and most pawns were properly redeemed.

The interest rates of pawnshops in those days had ceilings depending on the amount they lent, and were approximately 4% per month. Although this seems high today, the interest rate of so-called loan sharks, which could be called consumer financing in those days, was beyond comparison. Compared to them, pawnshops were easily accessible.

In those times, there were also public pawnshops, separate from general private pawnshops.

Local governments such as cities and prefectures ran such pawnshops, where they lent money with lower interest rates than those of their private counterparts. Nonetheless, they were not available to everyone, only those in need could use them, and there was a limit to the amount they could borrow.

Despite that, when people were not able to pay the money back, their pawns were confiscated, and if the pawn was sold for an amount higher than the loan, the balance was given to the user. In other words, it was not a business for profit, but part of a system to support the livelihood of the poor.

This public pawnshop system was modeled after a long-established system in France and Italy.

In fact, the system of pawnshops emerged as a form of charity in Europe. That is to say, pawnshops were also considered to function as financial institutions to support the poor in Europe.

Although pawnshops have developed as a business in Japan, it can be said that the system of pawnshops originally has an aspect as welfare activities to support the lives of the poor.

For example, from a business perspective, one would not lend money for a soot-stained pot as a pawn. Nevertheless, such an item was actually taken as a pawn.

You could say that the system where a pot could be pawned worked because such items were daily necessities and there was a trusting relationship between the pawnbroker and customer that it would be redeemed without fail, and the customer obtained sufficient cash to tide them over during a crisis, later paying it back with interest as a token of gratitude.

Will the functions of pawnshops ever become obsolete?

In recent years, the number of pawnshops has been decreasing. One of the reasons may be that the value of the function of a pawnshop as a financial institution that provides support for the poor has relatively decreased as various social security systems have been established. The discontinuance of the public pawnshop system in 2000 is a symbolic manifestation of this.

As modern pawnshops take name-brand products and precious metal goods as pawns, their customer segments have shifted to the middle and upper classes.

Pawning has become more expensive mainly because the secondhand market for cheap commodities has declined. In old times, even if some clothes were in foreclosure, there was a large used clothing market, which allowed pawnbrokers to do good business.

In that sense, the mass-consumption society, where people repeatedly buy items and throw them away, has changed the system of pawnshops.

The COVID-19 pandemic in the present day has certainly created situations similar to that of the Spanish Flu.

Although pawnshops played a major role in the abrupt changes of daily life due to the sudden catastrophe 100 years ago, in the current COVID-19 pandemic, pawnshops have not made a huge contribution as far as I know.

I believe this stems from the enhancement of the social security system and a change in the types of pawns that pawnbrokers handle, as I mentioned earlier.

However, the functions of pawnshops themselves have not changed.

According to a newspaper report, a female restaurant owner had to overcome a crisis by taking her long-sleeved kimono from her coming-of-age celebration, watches, and bags to pawnshops and flea markets because the payment of compensation for restaurant closure from the Tokyo Metropolitan Government was too late for her to pay her rent at the end of the month.

As you can see, even under a social security system, if you do not have cash when needed, you will have trouble all the same. On such an occasion, pawnshops would be of help, as you can quickly convert your belongings to cash.

Furthermore, you do not have to give up your cherished kimono and can retrieve it when you have money, which is a great advantage. The functions of pawnshops might never become obsolete after all.

Recently, flea market apps have become popular on the Internet, which has created an environment where you can sell items you no longer need.

You might think they are competitors of pawnshops; however, if flea market apps fully establish the secondhand market for cheap articles, pawnbrokers may be able to handle cheap pawns again.

If that happens, I would like to observe what kinds of people use pawnshops for what kinds of reasons as well.

* The information contained herein is current as of November 2022.
* The contents of articles on are based on the personal ideas and opinions of the author and do not indicate the official opinion of Meiji University.
* I work to achieve SDGs related to the educational and research themes that I am currently engaged in.

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