What long lines at pawnshops tell us

The long lines outside pawnshops in the Klang Valley on the first day of the conditional movement control order (CMCO) on May 4 and a few days after that, pictures of which went viral on social media, are a vivid reminder that more assistance is needed for the B40 and even M40 households.

According to media reports, the crowd was there to reclaim valuables, put up more items as collateral, pay interest or extend repayment periods.

Economists and analysts think the phenomenon demonstrates that more measures are needed to mitigate the effects of lost or reduced income.

The situation is especially acute for the self-employed or those who rely on daily wages such as petty traders, hawkers, taxi drivers, cleaners, labourers and sub-contractors.

Not only that, inflation is now a major concern due to the MCO which has disrupted the supply chain, resulting in a shortage of certain goods, and exacerbated by panic-buying and personal stockpiling.

Externally, as a country which is heavily reliant on food imports, we are also vulnerable to global supply and demand shocks as a result of similar containment measures.

As such, the MCO combined with similar trends in partial economic shutdowns on a global level has caused the prices of essential food items to spike. By late April, for example, the price of cabbage increased to RM6.50 – a whopping 62.5% increase – whereas the price of cucumber increased by 300% from RM1 to RM3.

In its findings from the second study on the economic impact of Covid-19 released in a press statement on March 24, the Malaysian Institute of Economic Research (MIER) reached the following projections:

  • Malaysia’s real GDP may shrink about 6.9% relative to the 2020 baseline. This translates into a 2.9% real GDP growth for 2020, relative to 2019.
  • The number of job losses (presumably mainly non-salaried jobs) could be in the region of 2.4 million, 67% of which are unskilled workers.
  • Household income is projected to fall by 12% relative to the baseline, which amounts to RM95 billion.
  • Such a fall is manifested in a sharp decline in consumer spending by 11%, despite the drop in general consumer price level by 4.4%.

On the same day as the Prihatin 1.0 stimulus package was announced, a Khazanah Research Institute (KRI) opinion piece, “The Impact of Covid-19 on the Urban Poor: Three Major Threats – Money, Food and Living Conditions” was published, highlighting a Bank Negara study which estimated the following:

  • A single adult living in the Klang Valley needs to earn a minimum of RM2,700 a month to live adequately; and
  • Married couples with two children require around RM65,002 to similarly “survive”.

The KRI article also mentioned that data from the National Housing Department shows that 65.8% of breadwinners in People’s Housing Projects (PPR) earn below RM2,000 on average.

The average monthly income of households in PPRs remains bound in the range of around RM2,000 in more developed states. The figures are RM2,039.40 for Selangor and RM1,994.40 for Kuala Lumpur.

The analysts concluded that “these households are probably already struggling to make ends meet and the repercussions from the (Covid-19) outbreak will create a huge dent in their finances”.

Shrinking purchasing power, loss of employment, lower wages, rising poverty (as measured by poverty line income which is officially RM980 per month for the peninsula, RM1,180 for Sabah and RM1,020 for Sarawak), higher cost of living and a safety net or welfare system on the back of limited fiscal capacity makes for a grim reading of our socio-economic future.

Professor Denison Jayasooria of Universiti Kebangsaan Malaysia who is also a prominent social activist sees the long queues at pawnshops as a phenomenon of the “poor man’s bank”.

In view of this, the government should implement the following measures to help the people who rely on pawnshops to raise emergency cash:

  • The housing and local government ministry which is responsible for the licensing of pawnbrokers under the Moneylenders Act 1951 should set up a one-stop centre to advise and guide borrowers to legitimate/legal pawnbrokers.
  • In the medium term, the government should legislate a comprehensive consumer credit law to ensure a healthy market and enhance the protection of borrowers’ rights and interests.

It is common in Malaysia for people irrespective of ethnic backgrounds to go to pawnshops as a source of temporary cash. This is especially so when festive seasons are around the corner.

Based on the conditional MCO/Covid-19 scenario, long queues outside pawnshops may well be a new normal, at least for some time.

Jason Loh Seong Wei is head of social, law and human rights at independent think tank EMIR Research.

The views expressed are those of the author and do not necessarily reflect those of FMT.

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