Republic of the Philippines

State Universities and Colleges

GUIMARAS STATE UNIVERSITY
Salvador Campus
McLain, Buenavista, Guimaras

REGULATORY COMPLIANCE AND FINANCIAL MANAGEMENT IN PAWNSHOP

INDUSTRY

A Research Proposal
Presented to
The Faculty of the College of Business and Management
Guimaras State University
Buenavista, Guimaras

In Partial Fulfillment
of the Requirements for the Degree
Bachelor of Science in Business Administration
Major in Financial Management

By
Estember, Allen Mae G.
Gabat, Antonette H.
Infante, Kate F.
Mananap, Ira Marie S.
Mendiola, Jenny Rose A.
BSBAFM 3A

June 2024

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 Republic of the Philippines
State Universities and Colleges
GUIMARAS STATE UNIVERSITY
Salvador Campus
McLain, Buenavista, Guimaras

TABLE OF CONTENTS

PAGES

Cover Page . . . . . . . . 1

Table of Content . . . . . . . 2-3

CHAPTER: I INTRODUCTION

Background of the Study . . . . . 4-8

Statement of the Problem . . . . . 8

Hypotheses . . . . . . . 9

Theoretical Framework . . . . . 9-11

Conceptual Framework . . . . . 11-12

Research Paradigm . . . . . . 13

Significance of the Study . . . . 14

Definition of Terms . . . . . . 14-15

Scope and Limitation of the Study . . . 16

CHAPTER: II REVIEW OF RELATED LITERATURE AND STUDIES

Conceptual Literature . . . . . 17-18

Related Studies . . . . . . 18

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State Universities and Colleges
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Salvador Campus
McLain, Buenavista, Guimaras

Foreign Studies . . . . . . 18-20

Local Studies . . . . . . . 20-22

CHAPTER: III METHODOLOGY

Research Design . . . . . . . 23-24

Respondents of the Study . . . . . . 24

Data Gathering Instrument . . . . . 25

Validity of the Instrument . . . . . 25

Reliability of the Instrument . . . . . 25-26

Data Gathering Procedure . . . . . . 26

Statistical Tools Used . . . . . . 26-27

References . . . . . . . . 28

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 Republic of the Philippines
State Universities and Colleges
GUIMARAS STATE UNIVERSITY
Salvador Campus
McLain, Buenavista, Guimaras

Regulatory Compliance and Financial Management in Pawnshop

Industry

Chapter 1

Background of the Study

Pawnshop, also known as “pawning” or sometimes maybe refer

as “pawnbroking” is considered as one of the oldest and a source

of credit (Carter et. al., 2012). Over 3,000 years ago, pawning

first started in ancient China where in monks provide credit to

peasants and small businesses. It was also recorded ancient

Greece and throughout the Rome. In the Philippines, pawnshops

play a vital economic role for individuals who belongs to the

low-income and middle-income groups. They provide are readily

accessible source of credit, which is significantly important in

a country where portion of its population is unbanked or

underbanked. According to the Bangko Sentral ng Pilipinas (BSP),

around 44% of the total adult population which is roughly around

34.3 million are unbanked. The role of pawnshop is to provide

short-term credit solutions to those individuals making them

important part of the financial system. For a credit to be

granted, pawnshops require a valuable item such as jewelry,

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gadget, or other item with value; that valuable item will be then

serve as a collateral. The procedure is simple: after a customer

brings in a valuable item, the pawnshop appraises it and makes a

loan offer base on percentage of the item’s appraised value. The

pawnshop has the right to sell the item to other individual if

the loan is not repaired together with the interest with in the

agreed period.

The Bangko Sentral ng Pilipinas (BSP) is the primary

government agency that governs pawnshop in the Philippines.

Pawnshop licenses is issued by Bangko Sentral ng Pilipinas, which

also oversees their activities and make sure they comply with the

Pawnshop Regulation Act or the Presidential Decree No. 114. In

this regulation, it sets the standard for pawnshop establishment,

interest rates, and customer protection. Anyone who wants to run

a pawnshop must first register with the Bureau of Commerce for

Sole proprietorship or the Securities and Exchange Commission for

corporation or associations. A license must also be secure from

the city or municipality where the pawnshop will be located and

operated. When it comes to record keeping, pawnshops are required

to maintain detailed records of the transaction. This is to

ensure transparency and prevent any criminal activities. A pawn

ticket is the pawnbroker’s receipt for a pawn. Under the Circular

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No. 938 Section 46., “Section. 4169p. Pawnshops shall at the time

of the loan, deliver to each pawner a pawn ticket shall contain

the following: All information about the pawnshop; name and

address of the pawner; date the loan was granted; amount of the

principal loan and net proceeds; effective interest rate in

percent, indicating if monthly or annually; service charge in

amount; penalty interest in percent, if any; appraised value of

pawn; maturity date; description of the pawn; and expiry date of

the redemption period. The interest rates charged by pawnshop are

notably high compared to traditional banks. They can range from

2% to 6% per month. For transparency, pawnshops are required to

inform their borrowers about the terms and conditions of the

loan, interest rates, and the consequences of non-payment. Full

disclosure about the terms and conditions allows the borrower

about their rights as a consumers. By knowing the terms and

conditions, it helps to protect themselves from unfair lending

practices such as excessive interest rate. In the side of

pawnshop, full transparency build trust between them and the

consumers.

Pawnshops play an important part in the financial systems of

many nations, including the Philippines, by providing credit

options that are easily available to people who might not

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otherwise have access to standard banking services. Pawnshops

need to manage their liquidity to make sure they have enough cash

flow to meet both consumer loan demands and operating expenses.

Pawnshops are required to keep sufficient cash on hand in order

to offer loans secured by pawned goods. With client demand being

erratic, having a liquidity buffer makes it easier to handle

abrupt surges in loan demands. Pawnshops must submit regular

financial reports to the Bangko Sentral ng Pilipinas (BSP) in

order to track their liquidity situation. In pawnshops, risk

management entails minimizing possible losses from loan defaults

and variations in collateral value. Accurate pawned item

appraisal is essential to risk management in pawnshops. In order

to reduce the danger of overlending, proper valuation makes sure

that loans are granted based on reasonable collateral values.

Pawnshops are essential to the Philippine economy and

culture because they give credit to those who most need it. Even

though these organizations provide necessary services, ongoing

regulatory framework improvements and financial literacy

campaigns are required to guarantee the efficient and equitable

operation of these institutions. Pawnshops can remain an

important resource for Filipinos, encouraging financial inclusion

and economic stability, by tackling these issues.

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Statement of the Problem

This research study determined the regulatory compliance and

financial management of pawnshops in Jordan, Guimaras.

Specifically, it sought to answer the following questions:

1. What is the profile of the respondents in terms of name of

pawnshop, number of years operating, number of employees,

seminar/training’s attended, and interest rate cap?

2. Is there a significant difference relationship between number

of years operating and effective liquidity management?

3. Is there a significant relationship between how often

pawnshops conducts seminar/training’s for their employees and

complying efficiently with the Anti-Money Laundering Law and Know

Your Customer?

4. Are there a significant relationship between the number of

employees and risk assessment of pawnshops?

5. Are there a significant relationship between the interest rate

cap with the profitability of pawnshops?

Null Hypotheses

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1. There is no significant relationship between number of years

operating and effective liquidity management.

2. There is no significant relationship between how often

pawnshops conducts seminar/training’s for their employees with

complying efficiently with the Anti-Money Laundering Law and Know

Your Customer.

3. there is no significant relationship between the number of

employees and risk assessment of pawnshop.

4. There is no significant relationship between interest rate cap

and profitability of pawnshop.

Theoretical Framework

This study was anchored on the Theory of Regulatory

Compliance by Richard Fiene, 2023, states that adherence to legal

and regulatory requirements is crucial for organizations to

operate withing the boundaries set by governing bodies and to

fulfill their obligations to stakeholders. It emphasizes the

importance of identifying and comprehending the specific laws and

regulations that pertain to an organization's industry,

jurisdiction, and operational activities. This involves staying

updated with changes in regulations and interpreting their

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implications for the organization. Recognizing the role of

individuals in compliance, the theory highlights the importance

of training programs and awareness initiatives. It emphasizes

educating employees about applicable regulations, ethical

standards, and the organization's compliance obligations. The

theory acknowledges that non-compliance can lead to legal and

financial consequences. It emphasizes the need for organizations

to understand the potential penalties, fines, sanctions, and

reputational damage that can result from violations of laws and

regulations. By emphasizing compliance with laws and regulations,

the theory of regulatory compliance aims to ensure that

organizations operate within legal boundaries, mitigate risks,

protect stakeholders, and maintain a strong ethical foundation in

their operations. This study is also anchored to Asset-Liability

Theory by John R. Brick, 2014.

This study is also anchored to Risk Management Theory. This

theory focuses on identifying, assessing, and mitigating

potential risks that an organization faces to minimize negative

impacts on its operations, financial health, and overall

objectives. The theory encompasses various strategies and tools

to manage uncertainties effectively. Risk Management Theory

provides a comprehensive approach to handling uncertainties in

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any organization. By systematically identifying, assessing,

mitigating, and monitoring risks, organizations can protect their

assets, ensure compliance, and achieve their strategic

objectives. The theory emphasizes the importance of proactive

risk management to enhance organizational resilience and

sustainability.

Conceptual Framework

The major focus of this study is focused on the regulatory

compliance and financial management in pawnshop industry. The

independent variable of this study is the business profile of the

pawnshop, which includes the pawnshops name, number of years

operating, number of employees, seminar/training’s attended, and

interest rate on pawned items.

As to “number of years operating”, the respondents are

grouped as <5 years, 6-10 years, 10-15 years, and 16> years which

was presumed that those pawnshops who is in the industry for a

long time have better liquidity management. As to “number of

employees”, respondents were grouped as 1-3, 4-6, 7-9, and 10>

which presumes that pawnshops with many employees have better

risk management compared to those who have few employees. As to

“how often pawnshops conducts seminar or training’s for their

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employees annually” the respondents were grouped as 0, 2 times

annually, 3-4 times annually,5-6 times annually, and 6> times

annually which presumes efficient compliance to Anti-Money

Laundering Law and Know Your Customer have a relationship on how

often pawnshops conducts seminar or training’s. As to "interest

rate cap" the respondents were grouped as <2%, 3%, 4%, 5%, and

6%> which presumes that lower interest rate affects the

profitability of the pawnshop establishment.

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Research Paradigm

Independent Variables Dependent Variables

Regulatory Compliance

a.) Anti- Money Laundering

and Know your Customer
Business Profile b.) Consumer Protection
1. Name of Pawnshop

2. Number of Years Operating

3. Number of Employees

4. Seminar/ Training's Attended Financial Management

5. Interest Rate on Pawned Items a.) Risk Assessment

b.) Liquidity Management

c.) Profitability

Significance of the Study

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The result of this study would be beneficial to the

following:

Pawnshop Customer. This study would provide them knowledge

about how the pawnshop industry works.

Pawnshop Owners. The findings of this study would give them

insights on how to run their business effectively and efficiently

while still maintaining compliance.

Bangko Sentral ng Pilipinas. This study would enable the

Bangko Sentral ng Pilipinas to develop more effective regulatory

frameworks and oversight mechanisms to ensure the stability and

integrity of the pawnshop industry.

Policy Makers. The study of pawnshop would be a guide to

policymakers in making laws to further enhance the management of

pawnshop.

Future Researchers. This study will serve as a guide to

them in conducting future research.

Definition of terms

To better understand this study, the following terms are

conceptually and operationally defined.

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Financial Management. This term refers to the strategic

planning, organizing, directing, and controlling of financial

undertakings in an organization or institute.

In this study, financial management refers to how pawnshop

manage liquidity and risk for a sound financial management.

Pawnshop. This term refers to a shop which deals in the

business of lending money at a specified rate of interest on the

security of movable personal property, which can be sold if the

loan is not repaid within a specified period.

In this study, pawnshop refers to a business establishment

that offers short term credit with the use of a personal property

as a collateral. In addition, they are also the participants in

this study.

Regulatory Compliance. This term refers to the process of

adhering to laws, regulations, standards, and other rules set

forth by governments and other regulatory bodies.

In this study, regulatory compliance means the adherence of

pawnshop when it comes to Anti-Money Laundering Law and Know Your

Customer; how they ensure transparency in relation to consumer

protection.

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Scope and Limitations of the Study

This study focused on the regulatory compliance and financial

management of pawnshops in Jordan, Guimaras.

The descriptive research method was employed to determine the

level of compliance, liquidity management, and profitability of

pawnshops in Jordan, Guimaras. A research made questionnaire was

used in gathering the data and information needed in the study.

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Chapter 2

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter contains the literature that has bearing

on the concerns of the study. It is divided into two parts; first

part is the related literature and the second part is the related

studies.

Conceptual Literature

On Regulatory Compliance

The Pawnshop Regulation Act, or Presidential Decree No. 114,

was enacted in 1973 with the aim of governing the formation and

functioning of pawnshops inside the Philippines. The decree lays

down a number of rules and specifications for pawnshops, making

sure that their business practices are open and equitable for

both the owners and the customers. Pawnshops are able to provide

loans based on an arrangement reached by the parties, as long as

30% of the item's estimated worth is loaned. The Usury Law's

maximum interest rate restrictions must not be exceeded.

Pawnshops also have the option to levy a service fee of up to PHP

5.00, or 1% of the initial loan amount.

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On Financial Management

Pawnshop financial management in the Philippines entails a

range of operational and strategic approaches to guarantee

profitability, regulatory adherence, and efficient client

service. Pawnshops must have a minimum paid-in capital of PHP

100,000 in accordance with PD No. 114. This guarantees that

pawnshops have enough capital to sustain their business and give

clients loans.

On Pawnshop

Pawnshops are a vital aspect of the financial system,

especially for those without access to standard banking services

or low-income households. They offer rapid, short-term loans

secured by collateral, which is usually jewelry, electronics, and

other high-value, portable objects that belong to the borrower.

Related Studies

Foreign Studies

According to "Legal Reform in Indonesian Pawnshop" a research

study states that the lack of pawning rules can provide legal

uncertainty. It is believed that the lack of a specific pawning

law has led to issues with consumer protection, particularly in

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the light of the growth of private pawnshops. The presence of

private pawnshops is harmful to customers and creates legal

confusion because there are aren't strong penalties and a

disregard for consumer protection, given that the majority of

private pawning enterprises — around ten thousand pawnshops are

around the streets of Indonesia, particularly private pawnshops

started to pop-up around Jabodetabek residence. The government

pawnshop is the oldest pawn business entity and the only pawn

business that is permitted to carry out pawning business in

Indonesian until 2016 — with the issuance of Financial Services

Authority Regulation Number 31 of 2016, private pawnshops began

to be given spaced and received permits to operate in providing

non-bank financial services to the public based on the law of

pawning. The researcher also states that, the government must

also ensure and implement legal changes pertaining to the pawn

industry in order to fulfill its obligation and convenience of

conducting business. The study findings, Indonesia does not yet

have a special regulation on pawning at the statutory level. Pawn

regulations are currently implemented in a number of different

rules. (Machmund et. al., 20222)

Moreover, according to the "The Challenges Of Sharia

Pawnshops In Indonesia In The Era Of The Industrial Revolution

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4.0" states that one of the financial organizations that offers

the community a reliable alternative source of money is Sharia

Pawnshops. One measure of the effectiveness of sharia pawnshop

management is the development of pawnshop profits, which has

continued to grow during the Covid-19 epidemic and the fourth

industrial revolution. Public interest in sharia pawn services is

also increasing. Pawns based on sharia principles put the

customers with not charged on loans but only need to pay

administrative fees, storage service fees and the cost of

maintaining collateral. (Wijaya, 2022)

Local Studies

According to "Industry Analysis of Pawnshop in the

Philippines" a research study states that, pawnshop is now the

same as "sari-sari store" that sells variety of products and

services. The researcher concluded that the present laws

governing interest rates and self-regulating methods of repayment

behavior, or "own-regulation", are effective in this sector and

raise consumer awareness of lending practices that contribute to

the development of fair lending practices that lead to

sustainability. The working poor and the middle-income household

are the most common customers of the pawnshop in the Philippines.

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Even with the increased capitalization, cash is just sufficient

and sometimes inadequate to meet the needs of the clients. The

researcher used the financial ratio analysis to determine its

financial performance with regards to its profitability, growth,

and sustainability. The study had a total of 50 respondents

coming from the different department of the selected pawnshop

companies. Based on the result of the study, customers of

pawnshop can easily switch to another pawnshops depending on its

interest rates and promotional activities. Their capacity to

drive down costs and negotiate for better or more services can

have an impact on an industry. The pawnshop industry is currently

operating at micro-level. However, the industry has sound

financial standing and uses promotional activities to counter

stiff competition. Therefore, pawnshops in Metro Manila have

bright prospects. (Borres, 2020)

Moreover, according to the "Selected Pawnshop Business along

Samulong Highway, Marikina City: Factors of Success" states that

pawnshop is a business that offers secured loans to people with

items of personal property used as a collateral. The researchers

used a descriptive research method. The total of respondents is

106 several from which comes from several pawnshop. In the study,

it is said that the pawnbroker is a business risk that an item

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purchased was actually a stolen property. To prevent such things,

pawnshop owners send their employees to formal trainings by

attending seminars to prevent such fraudulent activities. Some

pawnshop owners choose in house training. The researchers made a

recommendation that the pawnbrokers should endeavor to acquire

modern tools or equipment that will aid the appraisers in

detecting the genuiness of gems pawned to protect them from being

victims of fraudulent pawn. According to the data gathered in the

study, pawnshops have been in the business for a long time

despite the unstable economic and political condition of the

country. (Escala et. al., 2019)

Chapter 3

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METHODOLOGY

This chapter presents and describes the design, the

respondent of the study, locale, data gathering instrument, the

validity of the questionnaire, data gathering procedure, data

analysis procedure and the statistical tools used.

Research Design

A descriptive research design is used in this study.

According to Creswell, the descriptive research design is the

study that describes the characteristics of a population or

phenomenon being studied. Primarily used to gain an understanding

of a group or phenomenon. This involves collecting data through

surveys, interviews, or observation. Descriptive research design

answer “who, what, when, where, why, and how”.

William (2007), states that descriptive research is a

research design used to examine the situation involving

identification of attributes of a particular phenomenon based on

an observational basis.

According to Bayat (2007), descriptive research design is

collecting data that will explain the situation more completely

and will give objectivity to current issues or problems. This

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method ensures that collecting information for the study’s

variables are objective. It can give a compound and clearer

picture of a group.

Respondents of the Study

Respondents of the study were the employees working at the

pawnshop in Jordan, Guimaras. Convenience sampling was used where

researchers select participants based on their accessibility and

convenience during the gathering of data.

Table 1. Distribution of Respondents

Name of Pawnshops N %

RD Pawnshop 1 16.66%

Palawan Pawnshop 1 16.66%

Cebuana Lhuillier 1 16.66%

Tambunting 1 16.66%

Maria Gracia Pawnshop 1 16.66%

M Lhuillier 1 16.66%

Total 6 100%

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Data Gathering Instrument

To gather the needed data in this study, the researchers

used the researcher-made questionnaire composed of three parts.

Part 1 dealt with the profile of the business. Part 2 dealt with

the regulatory compliance and Part 3 dealt with the financial

management of pawnshops.

Validity of the Instrument

The researcher-made questionnaire was submitted to the

adviser for review and revision. After making corrections, the

questionnaire was submitted to the panel of experts for the

content and face validation for the appropriateness of the item

to the problem. The validity of a research study refers to how

well the results among the study participants represent true

findings among similar individuals outside the study.

Reliability of the Instrument

The questionnaire administered to the respondents, this

inter-raters validity was used to the determine the reliability

of the items. For the items to be considered reliable, it should

have the juries’ rating of 80% and above. Reliability refers to

how consistently a method measures something. If the same result

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can be consistently achieved by using the same circumstances, the

measurement is considered reliable.

Data Gathering Procedure

After the questionnaire was found valid and reliable, this

was reproduced and distributed to the respondents. The

researchers personally administered the questionnaire so that

they can answer the question asked by the respondents for

clarifications. The instructions in the questionnaire were

explained thoroughly to the respondents before answering the

questions. Upon retrieval of the questionnaires, responses were

tallied and tabulated.

Statistical tools Used

Data gathered was analyzed using the frequency count and

percentages for descriptive analysis. Percentage is a number or

rate that is expressed as a certain number of parts of something

dividend into some parts while frequency is the fact or condition

of happening often to a common occurrence.

Frequency Count. These was used to determine the profile of

the business in terms of business capital, monthly business

income and number of years in operation.

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Percent. These was used to determine the profile of the

business in terms of business capital, monthly business income

and number of years in operation.

Mean and Standard Deviation. These were used for the

regulatory compliance and financial management employed in the

operation of pawnshops.

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References

https://www.researchgate.net/publication/

24111139_An_Analysis_of_the_Role_of_Pawnshops_in_the_Financial_Sy

stem

https://uncledanspawnshops.com/about/history-of-pawn/

https://www.uobgroup.com/techecosystem/news-insights-consumer-

research-philippines.html

https://www.researchgate.net/publication/

361777409_The_Challenges_of_Sharia_Pawnshops_in_Indonesia_in_The_

Era_of_The_Industrial_Revolution_40

https://admin369.seyboldreport.org/file/V17I10A16-

2iUA9X4qI69v8LV.pdf

https://www.iienstitu.com/en/blog/risk-management-theory-

explained

https://lawphil.net/statutes/presdecs/pd1973/pd_114_1973.html

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APPENDIX A

QUESTIONNAIRE ON REGULATORY COMPLIANCE AND FINANCIAL MANAGEMENT

IN PAWNSHOP INDUSTRY

This research instrument is is intended to gather data on regulatory compliance and financial

management & pawnshop industry in the municipality of Jordan, Guimaras. You are in the best position

to supply the data needed in this study.

In this connection, please supply the questions sincerely and as truthfully as can by answering

the information on the space provided, please do not leave any items unanswered.

PART I. BUSINESS PROFILE

Name of Pawnshop (Optional): ___________________________________

Instruction: Please check (/) the space that corresponds to your answer

Years in Operation:

( ) Less than 5 years ( ) 6-10 years ( )11-15 years ( ) 16 years and above

How often does your pawnshop conducts training/seminar per year?

( ) 0 times ( ) 1-2 times ( ) 3-4 times ( )5-6 times ( ) 6 times and more

How many employees does your pawnshop has?

( ) Less than 2 ( ) 2-4 ( ) 5-6 ( ) 7-8 ( ) more than 9

Interest Rates on pawned Items

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Salvador Campus
McLain, Buenavista, Guimaras

( ) Less than 2% ( ) 3% ( ) 4% ( ) 5% ( ) more than 6%

PART II. REGULATORY COMPLIANCE

YES NO

1. We verify the identity of our customer by asking a valid I.D when transacting with us.

2. We collect information about the purpose and intended nature of the business

relationship.

3. We looked into our system if the customer had a past transaction to us through our

system.

4. We maintain records of our customers identification, transactions, and reports for a

specified period, typically five years.

5. We report any suspicious transaction to the relevant author if we detect any suspicious

activity from our customer.

6. To protect the identity of our customer and their transaction, we have our own data

base where we store all of the information.

7. To ensure transparency and we sure that we inform our customer regarding the fees

and interest rate.

PART III. FINANCIAL MANAGEMENT

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 Republic of the Philippines
State Universities and Colleges
GUIMARAS STATE UNIVERSITY
Salvador Campus
McLain, Buenavista, Guimaras

YES NO

1. To avoid loan defaults, we inform our customers if their loan is near its due.

2. To make sure that items are not fake, we conduct gold acid test for gold, scratch test on

silver.

3. To make sure we provide effective transaction to our customer and we make sure that

we have enough cash reserves.

4. We implement strict credit assessment criteria to minimize risk of defaults.

5. We use software to monitor outstanding loans and due dates, enabling timely follow-

ups on overdue loans.

6. We ensure accurate valuation of pawned items to avoid over-lending and to maintain

liquidity.

7. We run sales promotions or discounts to increase the turnover of slow-moving

inventory.

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