A new breed of private lenders is emerging and it is offering alternative short time lending solutions to asset rich clients. CNBC Africa’s, Tumisho Maganyele, takes you inside the world of posh pawn broking where the rich sell their Ferraris, their fine wine, even their yachts, to get their hands on cash. Let’s have a look.
Yes, the rich have cash flow issues too, but you won’t see anyone bringing in their old CD player so they can borrow a hundred rand to get them through the end of the month. Instead, lenders offer loans that range from thousands of rands to millions. Clients are offering wine collections, art collections, jewelry and not forgetting luxury vehicles as collateral for immediate access to cash.
But Robert van der Merwe, director of Bank on Assets, doesn’t like the pawnshop comparison.
We don’t do loans. What we do is we trade, we buy, we barter. That is what we do. So, if I can give you an example, if an individual comes in with a motor vehicle, we would actually purchase the asset from the individual for a value that we put onto it.
Our business is basically word of mouth and web based. I think 90% at the moment is web based. You would go onto our website, fill in an application form, give a description of the asset, and the value of that asset.
We would then get one of our consultants to phone you back, and have a discussion about the asset and how much cash you need for your asset, arrange an interview. Once the interview is arranged, we like to have a face to face meeting to understand what type of asset it is and which expert needs to have a look at the asset to make sure you are getting the right value on it.
So, who are the people pawning off their assets?
We have farmers coming in; we have entrepreneurs that are starting a new business in the townships. We have all walks of life. Funny enough, we have a lot of females who are coming in that are now getting into new businesses.
Bank of Assets is not the only one targeting the high earners. After close to two decades in the business world, Charles Meyerowitz (CEO of Lamna) realized how cash flow could be a problem as an entrepreneur. His business provides short term loans against personal valuables.
In terms of the vehicle side of the business, as I mentioned, we had a Ferrari that is quite a pricy vehicle. That Ferrari was R1.1 million in retail value and then obviously we had a loan in relation to that. In terms of jewellery, we have had up to R600 000. Artwork: probably in a similar amount.
But why are these asset rich clients turning to these lenders and not to their private bankers for funding?
Economist, Dawie Roodt, explains.
Literally, I can get the money within hours some times. The cost of this whole thing is relatively cheap compared to a bank quite often, but the cost of borrowing the money – interest, is usually more than what I am going to pay at the bank.
So, it really depends on circumstances but, quite often people do not want to make use of the banks, because they do not want the banks to know.
And I guess, another reason why people make use of these sort of things is because we do not want to let our private banker know when we make a lot of profit because maybe the private banker knows someone at SARS, and we don’t want SARS to know about this.
Although traditional banking is still the most important conduit for money there is a gap that businesses such as Lamna and Bank on Assets are ready to fill. Charles Meyerowitz says:
I haven’t got the stats as to what the size of the market is, but the demand for money is immense. The demand for simple, immediate access to funds is quite significant and we really are scratching the surface right now as we roll out our plans in terms of distribution and market reach.
We started in April this year and we have been going for 6 to 7 months. Each month we have seen a steady growth in the money that we are advancing to people, and we are seeing a repeated trend in repeat customers coming back to us now. They see the simplicity and they see the ease of it.
Dawie Roodt agrees on the enormous potential of the market:
It is becoming bigger and bigger. What the size of it is… is just about impossible to say. But my gut feel is that we are talking about many, many billions of rands out there. I will not be surprised if we talk about maybe, close to a hundred billion rand.
So, private lenders say business is good and the rich list keeps growing. For the asset rich hoarders it is always good to know that access to quick cash is only just a Ferrari or Tag watch away.
CNBC Africa’s Tumisho Maganyele
Client borrows R10,000 for 90 days.
Total Cost of Loan
Fixed rates range from 36% to 60% APR and payment options range from minimum 3 to maximum 24 months. Apart from the initiation and monthly fees shown below, the only additional fee is credit life insurance if the borrower does not have this already.