The return of the pawn industry

When Rodion Raskolnikov, the impoverished student from St Petersburg, sets out to commit the perfect murder in Dostoevsky's Crime and Punishment, the target for his deed is his local pawnbroker. Her murder, reasons Raskolnikov, would rid the world of a worthless parasite and therefore he should suffer no remorse. He successfully disposes of the elderly moneylender with an axe but it is only when her half-sister stumbles across the crime scene, and so has to be murdered too, that Raskolnikov becomes wracked with guilt.

It's an episode which neatly demonstrates the regard in which the pawnbroker was once held. These were loan sharks after all – local fat cats who dished out bad deals to the wretched poor. They were shady, Dickensian creatures who operated on the margins of the law and even to be seen darkening their doors was considered a great stigma.

But could it be, as the downturn continues to bite and the banks still refuse to lend, that our attitude towards the pawnbroker is beginning to change? Admittedly, as 21st century financial services go, it's not the most sophisticated, but the fact remains that it's the pawnbroker who isn't afraid to hand out credit even in the harshest economic climate. Now that the bankers' stock has sunk so low, is it about time they enjoyed something of a renaissance?

It is true that there has been massive growth in the industry recently. "In 1980 there were only around 50 pawnbrokers left in Britain – it was an profession that had all but disappeared," says Des Milligan of the National Pawnbrokers Association. "Now we have more than 1,200 on our books."

It's also true that recently there has been a subtle shift in the pawnbroker's clientele. "Because of the economic downturn we are now seeing more relatively well-off people using them because they can't get credit anywhere else," says Milligan. "We are also seeing a rise in the number of small businesses who are going to pawnbrokers to get money to tide them over to pay wages and buy stock."

In fact, it's an industry now deemed so reputable that Tesco has decided to have a go with the launch of its new Gold Exchange service, which offers cash – currently £10 per gram of 9ct gold – for customers' cast-off jewellery. "It's not actually pawnbroking as such," says a Tesco spokesperson – but it's offering cash for unwanted goods, so it clearly shares some common ground with the traditional pawnbroker.

It's quite an unusual step for a supermarket to take, as dealing with second-hand and often sentimental goods is always going to be fraught with difficulties. But what Tesco has cottoned on to is that the price of gold – by far and away the most popular pawnable item there is – has more than trebled in the past five years so there are big bucks to be made. Recently there has been a lot of controversy over disreputable online cash-for-gold companies ripping people off, so Tesco wants to be seen as stepping in to provide a transparent and trustworthy alternative.

"It's too soon to gauge how competitive its service will be, but if it isn't giving a good deal the only people losing out will be its loyal customers," says Dan Moore, who is a senior researcher at Which? magazine. "But Tesco is pretty savvy; it's spotted this is an area that other people are making a packet out of."

Which goes in part to explain what has been driving this revolution in the pawnbroking industry recently. Quietly, the pawnbroker has moved into our high streets. Carl Murray, the managing director of Capital Cash, which owns 22 Cash Converters stores in and around London, says that profits have just gone up and up. "For the past eight years we have seen double-digit growth right the way through the peaks and troughs of the economy," he says. "And in terms of retail we are seeing in excess of 10 per cent growth."

Cash Converters started from a single store in Perth which was opened by a savvy Australian called Brian Cumins in 1984. He had the vision to realise that if you presented second-hand goods in a store that was professional and well-run, profits would soar. Cash Converters is now the world's largest second-hand retailer and the garish yellow and red livery of its storefront now sits on 170 high streets across Britain.

Other pawnbroking chains – H&T, the biggest in the country, and Albemarle & Bond – followed suit, realising they needed to modernise or die. "They ploughed money into establishing well-lit, modern shops in the high street," says Milligan. "Prior to that, the pawnbroker would be situated in a back street in the shabby end of town. Awareness of pawnbroking started to take off simply because it was now on people's radar."

The shops started to diversify as well, offering everything from cheque cashing to gold buying and pay day advances alongside "buy backs", which is pawnbroking in its traditional sense. It works as it always did. The customer and pawnbroker agree a price for the goods that are being offered. The customer receives the loan and then has six months to retrieve their item, during which time interest accumulates monthly. "Around 70-75 per cent of all our buy backs are recovered by the customer," says Murray.

It all sounds simple but at the buy-back counter in the Cash Converters in London's Bethnal Green (which isn't a branch run by Capital Cash) there are a few quibbles going on. The third person in as many hours has just walked in with an identical Sony car stereo asking £30 for it. "It seems a bit dodgy to me," says the man at the counter, "but who am I to question?"

Another customer, separated from the other by a plastic screen, is loudly protesting that the necklace he's just being offered £27 for is 18ct gold and not, as the pawnbroker who has just tested it is suggesting, a fake. It does seem a bit of minefield but with two types of ID and a photo required from each customer for a database the police have access to, they are trying to ensure it's all above board.

And it has to be said, there are plenty of amazing bargains to be found. A turntable for £19, digital cameras for £30, an old green IMac for £14.99 and, sitting in pride of place in the entrance to the store, a mobility vehicle (lift up head for easy access! Flip up armrests!) for £329. Outside, Daniel, who runs a local comedy club, extols the virtues of the Cash Converters' DVD rack "It sells box sets of Friends for £2. I bought the lot, which means I got every episode of Friends ever made for £20."

And Roy, a local chef who has just shifted his stereo for £60, tells me that the Freeview box he got for a tenner four years ago is still going strong.

This buying and selling and borrowing and loaning is something we've done for millennia and the origins of pawnbroking can be traced back more than 3,000 years to the Chinese. The word pawn derives from the Latin word pignus, which means "pledge." The modern-day incarnation of the pawnbroker dates back to the Medici family of fifteenth-century Italy. The Medicis were a dominant financial power of the time – one half of which worked in banking, the other half in pawnbroking. The pawnbroker's symbol – three golden orbs suspended from a bar, which still hang outside shops today – was taken from the Medici family crest.

These days many pawnbrokers believe they have eBay to thank for the recent upturn in their fortunes. The website provided an aura of respectability about buying and selling second-hand goods. It encouraged us to see cash in unwanted things and threw off the stigma of being seen wearing someone else's old clothing. You can see how our thinking has shifted as terms such as "vintage" and "thrift" have gradually replaced words such as "second-hand", "unwanted" and "reject".

Murray says: "eBay has definitely been one of the biggest positives for us in the last few years. There are millions of people out there who once would never have considered buying second-hand but who got a couple of things on eBay and it totally changed the way they think. Yes eBay is a competitor, but without a shadow of a doubt it has also done an awful lot to legitimise the market."

One of the first proper pieces of research into the pawnbroking industry was carried out by Sharon Collard and David Hayes at the University of Bristol in August last year. Most of their results were not that surprising. They discovered that around two-thirds of pawnbroking customers were female with young families, the average age of the customer was 39 and the size of a loan was around £100. Most were people on low incomes or benefits and typically they would be seeking a bit of cash to see them through the week. They discovered that the cost ofborrowing from a pawnbroker was high with APRs varying from 70 to 200 per cent, but interestingly, many of the customers didn't seem to mind.

"More than 70 per cent said they thought they were getting a fair price under the circumstances," says Milligan. "You have to remember these are people who are not a good credit risk and have usually been turned down by banks so to get any credit is quite an achievement for them."

Given that many online lenders currently advertising on television have APRs of up to 2,689 per cent on their loans, also targeted at people who can't get credit from their bank, pawning items looks like a more sensible way to borrow. Another significant finding was that while many older people still have a problem with the stigma of the pawnbroker, the younger generation seem quickly to be shaking it off.

"During the depression in the 1930s there was a pawnbroker on virtually every corner and people were forced to pawn things just to feed themselves," says Milligan. "So the pawnbroker remained associated in people's minds with hardship and depression. Younger people don't have this view."

The research also revealed that the local pawnbroker is considered to occupy a unique place in society – often developing a strong personal bond with their customer. "Usually it is the same people coming back again and again through thick and thin over the years and so it becomes a highly personal relationship," says Milligan. "This is very different to the complete lack of relationship people have with their banks."

While we've all happily embraced eBay, the fact remains that it's still only a small percentage of us who dare darken the doors of our local moneylender. "The stigma is disappearing," concludes Milligan. "I suspect that over time we will come to view the pawnbroker as just another form of lending."

So if the festive season left you with nothing but a large pile of unwanted presents and an even-larger credit card bill, you could do a worse than scooping it up and dumping the whole lot with your local pawnbroker.

Who knows: it may be the start of a long relationship.