Pandemic revives Italy’s age-old shadow safety net: The pawnshop
ROME» The economic repercussions of Italy’s lockdown to contain the coronavirus nearly wiped Anita Paris out. Her son, a car mechanic whom she depended on for financial support, couldn’t work. Her small pension didn’t suffice. The welfare checks she had hoped would pour in from the government didn’t materialize.
And so Paris, a 75-year-old widow, turned to a shadow safety net that Italians have relied on for centuries, through plagues and sieges, wars and downturns. She rummaged through her home for “rings, necklaces, bracelets, everything I had around” and turned to the pawnshops that constitute an official, if anachronistic, part of the Italian banking system.
“I have bills to pay,” Paris said after pawning off her things under a vaulted ceiling in the “Valuables Appraisal” hall of a baroque palace that has housed a pawnshop and the pawn departments of major banks for more than 400 years. “I have to get to the end of the month.”
The economic picture for Italy, and for Italians in need of cash, does not look good. Banks, laden with debt and wary of taking on toxic loans, are unlikely to extend credit. The government’s aid packages and job security measures that have delivered billions of euros to struggling Italians are set to expire at the end of the summer, though the government is considering extending benefits.
The Italian economy is estimated to contract by nearly 13% this year.
Anxiety is palpable among Italians on pawnshop lines around the country. They worry that their short-term job contracts will run out, that customers will not fill their stores, that American tourists will not rent their rooms.
But the managers of the collateral loan sector — the institutional name for pawnshops — aren’t complaining. Activity increased from 20% to 30% immediately after the lockdown, as clients wanted to make sure they met their interest payments but also sought new loans. And with emergency benefits about to wind down, they expect business to surge.
“In the autumn, we will see more financial problems than what we have seen,” Rainer Steger, director general of the pawnbroker conglomerate Affide, said in his Rome office, where he looked like any bank manager in a suit and tie. “Maybe we can lend a hand.”
In the United States, pawnshops are associated with bulletproof glass partitions, “Guns, Gold and Cash” lawn signs and reality show spinoffs (“Hardcore Pawn”). In Italy, they have been part of the banking system for centuries.
Money changers in the Lombardy region worked with collateral in the Middle Ages. The Catholic Church in the 15th century sought to combat usury by pooling the resources of wealthy locals into a Mount of Piety.
The idea was to create a pile of cash to make no-interest — and thus no-sin — loans to the poor, and to undercut moneylenders, often consisting of a Jewish minority who had less access to other professions. To this day, these businesses remain a niche part of large banks.
“When things are going well you can buy your stuff back,” said Claudio Lorenzo, 65, a crossing guard who stopped working when schools closed and who waited outside the pawnshop of a Milan bank to pay interest on his and his wife’s wedding rings. “When things are going bad, you can’t.”
Defenders of the big pawnshops say only 5% of items are put up for auction, and that they are providing a vital service to workingand lower-middle-class Italians who need cash, and that their microcredit — the average loan is for less than 1,000 euros — keeps the vulnerable out of the hands of loan sharks and prevents predatory usury.
They say that they offer a more straightforward, and transparent, system than many modern banking instruments, and that unlike banks that check credit lines and investigate financial history, anyone who passes a criminal record check, satisfies money laundering precautions and presents items of real value (“not a fake Rolex,” Steger said) could get access to cash.
Clients deposit valuables as collateral, and then pay interest over a set period. If the client fails to pay up, the item may be put up for auction. In that case, the pawnbroker recoups its loan, and if a profit is made at the auction, it goes to the client.
On a recent morning in Naples, scores of people crowded outside the pawn branch of the Bank of Naples, which is owned by the financial giant Intesa Sanpaolo.
Silvia Agora, 47, had nearly earned enough money as a hairdresser to redeem the gold bracelets her family had pawned. Then the lockdown closed her salon for three months. When it reopened in May, social distancing restrictions drastically reduced the number of customers. Now she was here to make more interest payments.
“We were getting close,” she said, about reclaiming the heirlooms. “Now it’s impossible.”