Only in Hong Kong: Designer Handbags as Collateral

♠ Posted by Emmanuel in at 8/13/2013 10:31:00 AM
It's been such a long time since we've had a luxury goods feature, so here's one: Anyone who has been known to Asia knows the social pecking order here among cosmopolitan (small-c, that is) women has something to do with carrying designer handbags. Mainland China is becoming a large and lucrative market and Japan remains a steady customer for big-ticket items, but Hong Kong is still a prime destination--especially in designer-handbags-per-capita terms since the city is Asia's second largest market overall for these products. It does help that you can buy these items duty-free there. Some markets are built to retain their advantage for the long haul.

Therefore, it was only perhaps a matter of time that this global financial centre began offering to accept these designer handbags as collateral. Sure the mainland Chinese buy lots of those too, but those hordes of noveau riche do not have longstanding experience valuing such goods. Moreover, the kinds of financial services they offer are nowhere near as sophisticated as those of Hong Kong which are obviously on the cutting edge. So,without further ado, welcome the pawnbrokers accepting designer handbags:
Say hello to the handbag-backed loan, a unique Hong Kong phenomenon. While money lenders typically ask for cars and homes as collateral, Hong Kong's Yes Lady Finance Co. seeks its customers' beloved handbags. The four-year-old company accepts handbags on the spot, assesses them for their condition and authenticity and then procures loans within half an hour, as long as the bags are Gucci, Chanel, Hermès or Louis Vuitton. Occasionally, they'll consider a Prada.
Prada? It's so very gauche, dahling [I adopt a haughty pose and turn up my nose at its mere mention]. Questionable workmanship and excessive marketing hype aside for the latter brand, many residents actually prefer this kind of fast finance to avoid the red tape incurred while dealing with conventional consumer loans. Hence, many customers are not really hard up as you would assume in other settings, but whose cost-benefit analysis regard handbags-as-collateral favourably:
In a city driven by consumers' voracious appetite for the newest and latest luxury products, handbag-driven loans are a lucrative business. Yes Lady takes a purse and lends clients 80% of the bag's value. Customers get the bag back by repaying the same loan with 4% monthly interest, within four months. Classic purses and special-edition handbags often retain much of their retail price.

The company recently gave out a roughly US$20,600 loan in exchange for a Hermès Birkin. But Yes Lady's purse-backed loans come in all sizes and start at about US$190 with no upper ceiling. Yes Lady is carving out a niche for itself in a city with 200 licensed pawnbrokers and over 900 moneylenders. The pawn industry, one of the city's most traditional forms of lending, targets primarily poorer residents and foreign domestic helpers. Pawnbrokers typically only accept watches, jewelry and electronics as collateral.

But unlike pawnbrokers, Yes Lady, whose Cantonese name translates to "Rich Woman," has a different customer in mind: wealthy locals whose money is tied up—sometimes literally—in a luxury accessory [...] Angel Yam, a white-collar office worker, says she doesn't really care if she gets back the Chanel purse she recently traded in for a total of roughly US$1,550. "I have too many idle handbags at home," she said. "I don't feel any loss when I take some of them as collateral for loans."
So there is a shallow, materialistic culture at work here among status-seeking handbag collectors and the cottage industry dedicated to serving them, but I'm rather more impressed by the financial innovation it has spawned in one of the world's most cutthroat of capitalist societies.