Forgotten Markets

This chapter focuses on pawnshops and the institutions of pawnbroking. Studies show that large numbers of poor people and especially those who are unbanked use pawn loans by leaving collateral. This institution has existed for centuries and while attention has shifted away from it, the informal pawn broker remains a source of survival for the very poor. And this is not unconnected to what happens in the larger, formal economy. After the global financial crisis that began in the United States in 2007–2008, quickly engulfed the world, and became the protracted Great Recession, the pawnbroking industry in the United States and Sweden grew by an astonishing 20 percent per year, as poor people were forced to turn to informal credit for their survival. Despite this industry's importance, pawnbroking has characteristically received little attention and also little regulation. The chapter then raises a host of questions regarding the welfare consequences of these informal lending markets in rich countries and how they could be regulated.