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Earnings

Russian pawn shops boom in financial crisis

MOSCOW (Reuters) - Pawnbrokers in the Russian capital are enjoying the global credit crunch.

The world’s worst economic crisis for 80 years has hit Russia hard. Its stock market has dived by over 70 percent since May and the government has promised to spend $200 billion propping up its main banks and businesses.

But for Vadim Karashuk, head of Moscow’s 16 state-owned pawn shops, business is good.

“We’re lending out more cash now than ever because the banks are giving less credit,” he said, flicking a gold cigarette lighter between his fingers during an interview at his spacious central Moscow office.

He estimated his shops now loan around $200,000 a day -- about 15 percent of the total for all Moscow’s state and private pawn shops -- compared to about $130,000 two months ago.

“Before it was mainly older people with cheaper stuff, but now it’s middle class people with more valuable gold and jewelry,” he said.

The global liquidity crisis has made persuading a bank to make a loan tougher everywhere, but Russians are often quicker to seek alternative credit sources than consumers in many other parts of the world.

Private banking only arrived in Russia in the run-up to the 1991 collapse of the Soviet Union and consumer lending did not really take off for years.

As a result, many people still have fresh memories of seeking loans from pawnbrokers, relatives or friends and feel comfortable going back to that now.

HIGH INTEREST

Before the crisis, interest rates on bank loans in Russia were higher than in many comparable economies. They have gone up further since the crisis started as the central bank tries to stem the flow of capital from the country.

And this is driving people such as Irina, a middle-aged architect with carefully permed hair, to pawn shops.

She had just swapped a gold ring for the 7,000 roubles ($255) she needed to make up 28,000 roubles to buy a new fridge.

“Banks charge a lot of money for credit and there are always lots of forms to fill in,” she said sitting on a bench under the harsh glare of the pawn shop’s strip lights, two floors below Karashuk’s office.

For centuries pawn shops -- known as “lombards” in Russia and eastern Europe -- have made loans to people secured against valuables, mainly jewelry. One of Russian literature’s great classics, Fyodor Dostoyevsky’s 1866 novel “Crime and Punishment,” revolves around the murder of a pawnbroker and her sister.

Today, securities include mobile phones and cars, which are sold off at an auction if repayment is missed.

Most loans are for a few hundred dollars but Karashuk said in the last few years his shops have loaned $500,000 against a single diamond and once turned down an ornamental 19th century Faberge egg as security for a $1 million loan.

In the past decade Russia has enjoyed an economic boom, fueled mainly by soaring energy and commodity prices. But these have since tumbled, making the economy look vulnerable again.

Some Russians fear a repeat of the crash of 1998, when the government effectively defaulted on its foreign debt and banks collapsed, wiping out peoples’ savings.

“But there are big differences between now and 1998,” Karashuk said, taking a long puff on a cigarette as he sat before portraits of Moscow’s Mayor Yuri Luzhkov, Russian President Dmitry Medvedev and Prime Minister Vladimir Putin.

“In 1998 people pawned stuff off because there were no jobs and people needed the cash to live,” he said.

“Now people have jobs but the banks are not giving credit.”

Editing by Mark Trevelyan

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