October 1, 2015 / 12:25 PM / in 2 years

Belgium's state-run pawn shop invests for the future

BRUSSELS (Reuters) - Whether it’s a diamond ring, a designer watch or a first edition of a Tintin cartoon, every one of the rising number of lots to go under the hammer in the auction room of Belgium’s oldest financial institution tells a poignant tale.

Even the auctioneer says he feels the pain of the reluctant seller, who has parted with a prized possession to pay a medical bill, finance a school trip or, in extreme cases, to buy food.

Etienne Lambert, head of the centuries-old state-backed micro credit institution Le Mont de Piete (literally the Mount of Piety), says it troubles him that business is good.

“The poorer the city, the richer the Mont de Piete. And we are uncomfortable with that,” Lambert said.

Set up nearly 400 years ago in 1618 to combat usury and lend at the lowest rates to the indigent, Brussels’s Mont de Piete, a state-regulated pawnbroker run on a charitable basis, used to be one of many.

Now it is the sole survivor in Belgium and has the monopoly on what is known as “le pret sur gage” (pledge-backed loan). No other pawnbrokers are legal in the country.

It says the monopoly allows it to avoid commercial interests and loan below the market rate.

To protect its status, the Mont de Piete has begun legal action against Cash Converters, an Australian firm with outlets in Belgium that buys second-hand goods and gives clients an option to buy them back within a month.

In an emailed statement, Cash Converters said the buy-back option was an extra service that responded to client needs and in no way a pledge-backed loan.

It is unclear when the case will be resolved.

Lambert says the city’s Mont de Piete has rarely been needed more as the financial crisis of 2007-2008 made it harder for people to get credit.

“I come here when I have worries,” said one woman, who asked not to be identified because her husband did not know she was there. Her pledge was a gold necklace.

AUCTIONS LAST RESORT

Loans from Mont de Piete rose above 7 million euros ($7.8 million) in 2007 for the first time and above 9 million euros in 2011, although they fell back to just above 8 million in 2014.

At the same time, the amount paid back declined from around 7.3 million in 2011 to 6.4 million in 2014 and the number of lots for sale crept higher.

To cope with the demand and allow a wider variety of property to act as guarantees, the Mont de Piete is enlarging its building in the Marolles, a working class district in central Brussels.

Work should be completed for the 400th anniversary in 2018.

The three million euros of expenditure, which includes increasing storage, creating a museum and installing solar panels, is as carefully calculated as the philosophy of the Mont de Piete is to give its clients as large a loan as it can based on the value of their pledge at the lowest interest rate.

“We are obsessed with the idea of not getting people into too much debt,” Lambert says.

Loans are for six months and the average value is 350 euros. The minimum is 30 euros and the maximum is between 50 and 70 percent of the estimated value of the pledge. The current rate is 6.5 percent annualized.

The only conditions are the object and an identity check. Anonymous loans, once permitted, are no longer allowed.

The auctions are a last resort when the customer cannot pay and are used to cancel the debt and return any profits to the often reluctant seller.

Adding to the drama of the auction room, the seller remains the owner until the hammer goes down, meaning that if a debtor manages to pay the interest, at the very last minute the lot is suddenly withdrawn.

Editing by Michael Roddy and Ralph Boulton

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