Could pawn shops be a missing link in the Philippine small-scale gold supply chain?

On a small street in the Philippine gold town of Paracale bustling with motorbikes, food vendors, and markets sits the local branch of Cebuana Lhuillier. This company is well-known in the country as a prominent micro-financial institution specializing in pawn-broking, money remittance, and insurance. 

And as of last month, it is also the newest formal buyer accredited by the central bank to purchase gold from artisanal and small-scale gold mining operations. 

For decades, according to Philippine law the Bangko Sentral ng Pilipinas (BSP)—the central bank of the Philippines—was the only authorized gold buyer in the country. Anyone wishing to legally sell small-scale mined gold had to do so at the central bank’s gold buying stations, which advocate responsible mining by requiring compliance with the London Bullion Market Association (LBMA) Responsible Gold Guidance standards. 

However, a major challenge small-scale miners faced is the inaccessibility of these gold buying stations. Although small-scale mining activities take place in 40 provinces across the Philippines—an archipelago with more than 7,000 islands—the central bank has just five gold buying stations present across the entire country. 

For those at the planetGOLD Philippines mine site near Paracale, the closest gold buying station is the bank's South Luzon Regional Office in Naga, at least three and a half hours away by car. Miners at the project’s other site in Sagada had to travel over seven hours to reach the nearest station.

In light of this, the central bank introduced new regulations in 2019 allowing accreditation to individuals and associations to buy gold. The BSP also abolished the 4% excise tax and 1% creditable withholding tax as an incentive for miners with a small-scale mining contract to sell to them directly or to accredited individuals. 

Where the pawn shops come in

In an effort to make selling on the formal market more accessible, the central bank empowered Cebuana Lhuillier to begin purchasing gold as an accredited buyer in early 2024. The objective of this partnership is to reduce links in the artisanal and small-scale gold supply chain and to ensure a better price for miners.

Despite having a somewhat dubious image in some countries, pawn shops are viewed favorably by many Filipinos due to their accessibility and ability to fulfill pressing short-term financial needs. In this context, pawn shops act as micro-financial institutions, enabling low-income individuals to access loans or other financial services that might not have been available to them from other financial institutions.

A contextual study carried out by planetGOLD Philippines in 2021 found that 81% of small-scale miners surveyed were unbanked, and only 23% of respondents had successfully accessed loans from formal or informal sources. The study noted that due to their limited educational levels or familiarity with financial systems, miners are typically intimidated to visit formal financial institutions, especially commercial banks.

There are also more pawn shops than commercial banks in the Philippines. With more than 3,500 branches across the country, enterprises like Cebuana Lhuillier are positioned to provide a wide range of financial services that would otherwise be offered by traditional banking institutions.

At the moment, there are two areas where Cebuana pawn shops are being piloted as gold buying stations. The first branch that joined the pilot gold buying program in March is located in T'boli in the southern region of South Cotabato. As of September 12, the branch in Paracale became the latest Cebuana accredited gold buyer, and a third shop in Itogon, Benguet Province is set to begin purchasing this week.

One other pilot site is also in the works in Sagada, the planetGOLD Philippines' other project site located in the northern Mountain Province. In that case, since the nearest Cebuana pawn shop is still an hour and a half drive from the Sagada mine site, Cebuana will be establishing a first-of-its-kind mobile buying station close by. The planetGOLD Philippines project team's engagement with Cebuana was instrumental in including both Paracale and Sagada as pilot sites for this new gold buying program.

How it works in Paracale

It is estimated that over half of the total population of Paracale are engaged in small-scale mining, either as a mine worker, financier, processor, independent gold panner, or in a support service business. There is one declared Minahang Bayan (government-declared small-scale mining area) in Paracale, which covers around 26 hectares of land. 

The mining association with active operations in this area is Samahan ng mga Minero sa Barangay Casaluga (SMBC), the beneficiary of the planetGOLD Philippines project, which is comprised of nearly 400 members and is fully formalized. 

When the Paracale branch of Cebuana Lhuillier was designated a pilot site for purchasing gold from small-scale miners, it signed a gold sale agreement with the SMBC association. The association then provided Cebuana with a list of sellers who would be taking gold to sell at the pawn shop. These individuals are mainly financiers of different shafts in the mining association’s small-scale mining contract area, who are themselves accredited gold traders. 

Beginning on September 12, these gold traders now bring the gold they’ve collected to the Cebuana branch in town. The space is small, with metal bars mounted above a counter, a security guard at the door, and no goods on display. When someone comes in to sell, the teller first checks Cebuana's list of approved individuals who are permitted to sell gold for a mining association. 

The teller will only purchase the gold if it is brought in by someone on the list. After confirming the seller is permitted to sell, the teller weighs the gold on a small scale then uses an assay gun to analyze it. Based on this, the teller calculates payment to be made for the gold. 

The central bank generally offers a higher price for gold compared to informal traders, even after fees that are normally charged. Aiming to further lower barriers for small-scale operations to participate in the pilot gold buying program, Cebuana has also agreed to cover any processing and retention fees. 

As of September 21, the purchase price quoted at Cebuana per gram was just roughly 20 pesos (about 35 cents USD) lower than the central bank’s price—which was the international spot price for gold that day. That same day, the teller at the Paracale branch estimated that he had purchased around eight to ten grams of gold in the first week of buying.

A growing trend

Central bank gold buying has been surging at all levels in recent years, including among emerging market economies that produce gold domestically, according to the World Gold Council. Like the Bangko Sentral in the Philippines, central banks in these countries are increasingly seeking to buy gold from responsible artisanal and small-scale gold miners through Domestic Purchase Programmes. 

In June 2024, the BSP along with the central banks of Colombia, Ecuador, and Mongolia became the original signatories to the London Principles on Central Bank Artisanal Small-scale Gold Mining Domestic Purchase Programmes, a set of 12 guidelines to promote responsible gold-sourcing practices from artisanal and small-scale miners. 

These programmes have the potential to provide miners with an avenue to participate in formal supply chains, simultaneously benefiting from fairer prices and a more transparent, trustworthy purchasing process. This could also support other objectives of helping artisanal and small-scale gold producers to become formalized and to meet international due diligence standards. 

Time will tell how successful the new arrangement between the central bank of the Philippines and Cebuana Lhuillier’s pawn shops will be. If it manages to meaningfully bridge the gap between small-scale miners and the formal market, the pilot program could be a model for others to follow. 

For a broader look at efforts to advance responsible ASGM gold supply chains in the Philippines and other planetGOLD countries, be sure to explore the resources listed below.