Coming Soon to Indonesia's State Pawnshops: Gold Bars on a Payment Plan

State-owned pawnshop operator PT Perum Pegadaian said it plans
to start selling gold bars on installment plans in April to
reach customers who want to invest in the metal but lack the
necessary cash.

Wasis Djuhar, Pegadaian’s director of business development, said
on Friday that the new business will be run better than its
predecessor, a gold coin business that was closed in early 2000.

“The business is meant to provide a channel for people who want
to invest in gold but do not have enough cash. They can buy gold
through a down-payment and several installments,” Wasis said.

Wasis said the gold business will operate under the company’s
Shariah division and it will be available to customers at all
Pegadaian outlets.

Gold bars are currently sold in jewelry shops for around Rp
350,000 per gram. The bars, which can be bought in weights as
small as one gram, are a popular investment in Indonesia because
the precious metal is seen as being insulated from domestic
inflation.

“We are also considering expanding the gold business by
providing storage for customers who want their gold investments
kept safely,” Wasis added. “The potential is good because safety
is a significant issue when investing in gold.”

On Thursday, Chandra Purnama, president director of Pegadaian,
said that the company has been looking for new ways to expand
its business because it was unlikely to be able to resume its
stock pawning service.

He said a regulation prohibited the company from accepting
securities such as stocks and bonds as collateral for loans.

Pegadaian started the stock pawning service in July 2007 but it
was halted in November 2008 due to the global financial crisis.

The total value of securities pawned at Pegadaian at one point
reached Rp 500 billion ($54 million) but dropped to Rp 75
billion when the service was halted temporarily.

“When we earlier planned to re-open the service this year, we
wanted to expand the service by including bonds and US dollar
bank notes,” Chandra said. “However it turns out that there is a
regulation that prohibits us from taking securities as
collateral, so it seems we are not going to provide the service
again. But we are still going to open the dollar service since
it is not a security.”

Under the dollar service, people can keep use their greenbacks
as collateral to borrow rupiah notes.

Pegadaian plans to expand its lending from Rp 49 trillion last
year to Rp 75 trillion this year. If the company reaches that
mark, the company’s gross profit would rise to Rp 1.45 trillion
from Rp 1.2 trillion in 2009