Pawnshops help Filipinos to have an additional source of credit, especially the small borrowers who can’t obtain loans from banks, credit cooperatives, lending companies, and other financial institutions in the country. For people who need instant money to satisfy their emergency needs, a pawnshop can help them get a quick loan without a background check requirement as long as they have personal properties to deposit as collaterals, such as fine jewelries and electronic items. For pawnshops or pawnbrokers, this collateral requirement makes their lending business quite secure while earning interest income from the loans they provide to clients.
Establishing and operating a pawnshop can be a profitable business. But since this type of business involves financing activities, its establishment and operation are strictly regulated by the government to protect financial consumers. Pawnshops are govern by the Presidential Decree No. 114 known as the “Pawnshop Regulation Act” (as amended) which was signed and approved by the late President Ferdinand Marcos on January 29, 1973.
The regulation and supervision of pawnshops in the Philippines are outlined in the “Revised Manual of Regulations for Non-Bank Financial Institutions – Pawnshops” issued by the Bangko Sentral ng Pilipinas (BSP), as amended by BSP Circular No. 711 on January, 28, 2011 and other future amendments.
If you are planning to register and start a pawnshop business in the Philippines, here are some important guidelines to help you:
What is a pawnshop?
A pawnshop, pawnbrokerage or pawnbroker refers to a person or entity engaged in the business of lending money on personal property delivered as security for loans (Section 3 of PD No. 114). By regulation it has to be duly organized and licensed to have the power to engage in the business of lending money on the security of personal property (Section 4101P.1 of MORNBFI-P).
What form of business is allowed to establish a pawnshop?
A pawnshop may be established as a single proprietorship, a partnership or a corporation. However, only Filipino citizens may establish and own a pawnshop organized as a single proprietorship. A pawnshop established as a single proprietorship by non-Filipino owner prior to January 29, 1973 may continue as such during the lifetime of the registered owner (Section 4101P.2 of MORNBFI-P).
If a pawnshop is organized as a partnership, at least seventy percent (70%) of its capital shall be owned by Filipino citizens. Pawnshops established as partnerships prior to January 29, 1973, with non-Filipino partners whose aggregate holdings amount to more than thirty percent (30%) of the capital may retain the percentage of their aggregate holdings as of January 29, 1973, and said percentage shall not be increased, but may be reduced, and once reduced shall not be increased thereafter beyond thirty percent (30%) of the capital stock of such pawnshop.
In the case of a pawnshop organized as a corporation, at least seventy percent (70%) of the voting stock therein shall be owned by citizens of the Philippines, or if there be no capital stock, at least seventy percent (70%) of the members entitled to vote shall be citizens of the Philippines.
How to register a pawnshop in the Philippines?
Any person or entity desiring to start a pawnshop in the Philippines should register with the Department of Trade and Industry (DTI) for a single proprietorship form of business or with the Security and exchange Commission (SEC) for a partnership and corporation for of business. Please read out posts on how to register a business trade name with the DTI and how to register a corporation with SEC.
For pawnshops with foreign equity participation, they have to register with the Board of Investments (BOI).
The business name of a pawnshop that is registered with the DTI or the SEC, should include the word “pawnshop” to reflect the nature of business it is engaged in. As a general rule, the business name appearing in the Certificate of Registration of DTI or SEC shall be used consistently in the pawnshop’s signage and in all documents including pawn tickets, official receipts, stationery, and other similar documents of the pawnshop.
After registering with the DTI for single proprietorship or SEC for partnership and corporation, they should also register and secure a business license from the city or municipality where the pawnshop is to be established and operated. Take note that the requirements and procedures for securing a Mayor’s business permit may vary in each city or municipality. Please read our post on how to secure a Mayor’s Business Permit in the Philippines.
Aside from registering with the DTI or SEC and securing a Mayor’s Business Permit, pawnshops must also be registered with the Bureau of Internal Revenue (BIR) to file and pay their taxes. Please read our post on how to register a business with the BIR. Moreover, they may also be required to register with other government offices aside from the previously mentioned above. Please read our post on how to register a business in the Philippines.
Before a pawnshop can commence actual business operations, it must be first registered with the BSP. To register a pawnshop with the BSP, it should submit to the BSP an “Information Sheet” on the entity (using BSP-prescribed form for pawnshops) duly accomplished by the proprietor/managing partner/president under oath that shall be the basis for the issuance by the BSP of an Acknowledgement of Registration (AOR). The Information Sheet shall be accompanied by the following documents:
1. Copy of Certificate of Registration of Business Name with the Department of Trade and Industry (DTI), in case of a sole proprietorship or Articles of Partnership/Incorporation and By-Laws duly registered with the Securities and Exchange Commission (SEC), in the case of a partnership or a corporation, which Article shall indicate that the primary purpose of the partnership/corporation is to engage in the business of a pawnshop or a pawnbroker.
2. Copy of City/municipal license/business license/mayor’s permit for the current period.
3. Personal Data Sheet (using BSP-prescribed form for pawnshops) with passport size picture duly accomplished by the proprietor or partners or directors, president and manager or officer-in-charge of the head office.
4. Duly notarized authorization to conduct background investigation from the proprietor or partners or directors, president and proposed manager or officer-in-charge.
5. Certification from any banking institution on the amount deposited for pawnshop capitalization indicating the outstanding balance and owner of the account.
6. Sample pawn ticket
7. Copy of NBI Clearance of proprietor or partner or incorporators, directors, president and proposed manager or officer-in-charge.
8. Reproduction of signage to be used by the pawnshop
9. Notarized special power of attorney authorizing a person/entity to apply for registration in behalf of the proprietor/partnership/corporation. In the case of a corporate applicant, a certified true copy of the board resolution authorizing the person or entity shall likewise be submitted.
10. Certification from the president/managing partner/proprietor that the proprietor or partners or incorporators, director, president and proposed manager or officer-in-charge have attended the Anti-Money Laundering Act seminar and pawnshop regulation briefing conducted by the Anti-Money Laundering Council Secretariat and the BSP, respectively.
11. Corporate pawnshops with total resources of at least P50 million shall submit to the BSP a notarized certification that it has complied with the relevant requirements of the SEC on corporate governance.
12. For applications submitted through BSP Regional Offices or Branches, photocopy of Official Receipt as proof of payment of P1,000 processing fee.
As a prerequisite for the issuance by the BSP of the AOR, the proprietor, partner, director, president as well as manager or officer-in-charge of the head office and branch shall have attended the: (A) Briefing on Pawnshop Regulations conducted by the BSP or any accredited service provider; and (B) seminar on the Anti-Money Laundering Act as prescribed by the BSP.
Every pawnshop head office shall pay a one-time processing fee of P1,000 for the initial registration, and P500.00 annual fee upon approval of application for registration. Thereafter, the annual fee shall be paid not later than March 31 of every year.
What is the capitalization requirement for a pawnshop?
Section 4106P of the MORNBFI-P, as amended, stated that every pawnshop shall have a minimum paid-in capital of P100,000.
A pawnshop’s paid-in capital may be in the form of:
b. Tangible properties, including real estate and improvements thereon; and
c. A combination of cash and tangible properties.
Tangible properties shall be limited to those that are necessary for the conduct of the pawnshop business. They may be valued at fair value which is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. The fair value of land and buildings is usually determined from market-based evidence by appraisal that is normally undertaken by professionally qualified appraisers.
The value of the tangible properties contributed as capital shall not exceed twenty-five percent (25%) of said paid-capital and surplus/accumulated surplus. For pawnshops existing as at 29 January 1973 whose value of properties exceed the prescribed ratio, such percentage may be retained or reduced but shall not be increased thereafter. Should the ratio, on the other hand, fall below the prescribed level, it may be increased but not beyond twenty-five percent (25%).
To learn more about registering a pawnshop with the BSP, you can visit their official website to read more, visit their office address to inquire personally or contact them through the following phone number and email address.
Bangko Sentral ng Pilipinas
A. Mabini St. cor. P. Ocampo St.,
Malate Manila, Philippines 1004
Tel. No. : (632) 708.77.01
Aside from registration, there are also many other important things to remember when establishing and operating a pawnshop, such as the binding of accountable officers with reputable insurance or surety to safeguard the assets of the pawnshop, qualification requirement of owners and officers, establishment of branch offices, adoption of acceptable accounting system and standards, and reportorial requirements to be submitted to the BSP. To learn more, please read also in full the following references for registering a pawnshop business with the BSP:
Disclaimer: This article was written and published for informational use only and is not provided to serve as legal, tax, or investment advice. Furthermore, new and subsequent laws, regulations, issuances, and rulings related to the topic that will occur in the future may render the whole or part of the article obsolete or inaccurate. We do not guarantee and is not liable for the accuracy or completeness of any information provided herein or in any outcome as a result for using this information.