January 13, 2011 / 8:31 PM / 7 years ago

Mexicans turn to pawnshops as recovery disappoints

MEXICO CITY (Reuters) - Jonatan Noyola may not be able to discuss the intricacies of the Mexican economy, but he knows one thing: the weak economy is forcing him to pawn his jewelry to fill gaps in a salary that just doesn’t stretch far enough.

Even though the worst of the country’s economic crisis appears to be over, millions of Mexicans are still queuing up at pawnshops to hock their valuables for a little more ready cash.

Loans made at Nacional Monte de Piedad, Mexico’s largest chain of pawnshops and an official charity, reached a record 21 billion pesos ($1.7 billion) in 2010, and the industry association expects overall lending to rise 5 percent this year.

Noyola, a 28-year-old retail assistant, blames his financial difficulties on the domestic economy, which grew an estimated 5 percent in 2010 after a 6.1 percent dive in 2009.

Official forecasts are for a slowdown in growth to about 4 percent in 2011, and ratings agency Fitch warned on Tuesday Mexico’s drug war, which has killed more than 34,000 people in four years, could weigh on growth and investment.

“I‘m going to pawn my jewelry in order to pay for public transport and food. The situation is very bad and puts me in the embarrassing position of having to come here,” Noyola said, while waiting in line at the Monte de Piedad in Mexico City’s central Zocalo square, the country’s oldest pawnshop, for a value assessment on a bracelet.

The culture of pawning was brought to Mexico by the Spanish conquistadors. Silver magnate Pedro Romero de Terreros founded Mexico’s first Monte de Piedad in 1775 and within its first year, it had received visits from one in four of the capital’s residents.

The institution says its interest rate of 4 percent a month is the lowest in the industry, with services aimed at the poorest members of society, who in many cases do not have bank accounts.

BUSINESS BOOMING

“In 2010 we made 24 million loans ... by December 2011 we will have 312 branches and will have reached annual transactions of 26 million,” Monte de Piedad spokesman Gustavo Mendez said in an interview.

The figure represents about 1 percent of the amount banks lend to consumers and businesses in Mexico, where official unemployment runs at more than 5 percent -- low by international standards, but above pre-crisis levels.

Mexico’s weak social safety net means people can’t afford to go without work, and the government estimates about 20 percent of the country’s 112 million residents do not have enough money to eat properly.

Many people complain that their salaries are eaten up by inflation, which closed 2010 at 4.4 percent.

“I came to collect my jewelry so I can pawn it again,” said retiree Gloria Moreno, who says she used to live well on her monthly pension of 5,000 pesos ($409) but now struggles to make ends meet.

Some pawnshops charge monthly interest rates of as much as 20 percent but say business is booming despite the massive margin over official rates of 4.5 percent a year.

“There was lots of activity recently. There are a lot of people without work, or with salaries that do not go far enough,” said a pawnshop “coyote” in the city center, offering rates of 12 percent a month to passersby -- more than double the rate on a basic credit card.

($1 = 12.1 Mexico pesos)

Writing by Krista Hughes

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