One business that benefits from South Africa’s struggling economy

Cash Converters has seen its pawnbroking business grow strongly over the past few years as South African consumers come under increasing financial pressure. 

The company’s CFO, Peter Forshaw, said this has resulted in many consumers turning to pawnbroking to get cash in hand. 

Cash Converters were not always in the pawnbroking business. It started in 1994 as a second-hand goods trader. 

Richard Mukheibir, the current CEO, and his business partner, Forshaw, were among the first to bring international franchising to the country when they opened the first store in 1994. 

From there, what started as a single store in Parow, owned and managed by Mukheibir for two years, has grown into a chain of more than 85 stores across Southern Africa with over 1,000 employees.

The company still holds the master franchise licence in sub-Saharan Africa and has stores in South Africa, Nigeria, and Namibia. It plans to expand further across the continent. 

Pawnbroking really took off in 2007, when the National Credit Act was passed. This act provided regulation that enabled Cash Convertors to enter the credit space. 

It enabled the company to grow rapidly by offering instant cash for assets from consumers and, in particular, extending a form of credit to South Africans overlooked by the banking sector. 

“It is a credit agreement between the consumer and the company. Unlike traditional credit, credit scores and affordability are not a factor. The only factor is the value of the product you provide as a basis for the loan,” Forshaw explained. 

In effect, you give Cash Convertors a product, and the company gives you its cash value on the spot. When you want the product back, you pay back the principal amount plus fees and interest. 

Thus, the goods you provide are treated as collateral for the loan. 

“If you cannot settle the credit agreement, there are no financial repercussions for consumers. All that happens is you do not get your goods back.” 

This part of the company’s business has grown strongly in recent years as South Africa’s rising cost of living has resulted in many consumers turning to pawnbroking as an easy way to get cash in hand. 

Forshaw explained that the company’s performance can be seen as a proxy for the health of the broader economy and the state of household finances. 

However, the company expects demand for its pawnbroking service to increase over time as even richer consumers need cash in hand to make payments. 

“The product has become more popular and socially acceptable as South Africans become more knowledgeable about what we offer.” 

“We really have become a trading hub for consumers by providing an easy way to get cash in hand.” 

Cash Converters has also recently launched a virtual debit card option for consumers who do not want to have the risk of carrying cash on their persons. This service is administered by FNB through its eWallet. 

The company has pushed deeper into financial services, eyeing better margins and stronger growth associated with this part of the business. 

In 2009, it launched a Personal Finance Centre through which South Africans could acquire loans against their salaries. 

“As a company that is well established in the second-hand buying and selling space, we have become increasingly well-known for our loan business and have firmly established ourselves as micro-lenders,” it said. 

Asset-based financing has grown into a billion-rand business, and Cash Converters has played a large role in its growth in South Africa. 

This form of financing is also common across the world, with the UK’s asset-based lending industry being over £20 billion. 

Forshaw said it is also set to grow strongly in the coming years as South African consumers face increasing pressure from interest rates remaining higher for longer.