Handbag-Backed Loans Tide Over Hong Kong's Wealthy Fashionistas Pawn Their Purses for Quick Cash

HONG KONG—When 30-year-old housewife Maggie Wong is tight on cash, all she needs to do is reach for her designer purse—and then hand it directly over to a loan officer.

Luxury-obsessed Hong Kong has a new form of loan collateral: the handbag. The WSJ’s Mariko Sanchanta and Riva Gold discuss this money-lending innovation from Lady Finance—which will lend against a purse on the spot, as long as it’s from Gucci, Louis Vuitton, Hermès or Chanel.

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.

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.

Inside the Milan Station store on Wellington Street, in Hong Kong's Central district.

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.

Despite Hong Kong's numerous banks that offer low interest rates on consumer loans, many residents look to nonbank lenders for their flexibility in loan size and collateral type. While banks are regulated by the Hong Kong Monetary Authority, nonbanks are subject to the more flexible guidelines set out by the Money Lenders or Pawnbrokers Ordinance.

As a result, Yes Lady doesn't need to ask customers to show proof of income or undergo a credit check. All they require is a Hong Kong identification card and address.

Ms. Wong says she uses the service when her short-term cash flow is tight because her money is locked up in the stock market or fixed saving deposits.

"I don't want to go through all the complicated application procedures in the banks," said Ms. Wong, who uses the money to pay for things like her 5-year-old son's tuition fees as well as daily expenses.

In the past year, she has traded in three purses, Guccis and Louis Vuittons, for a total of US$1,290. She repaid the loans and now has the bags back.

For some customers, a purse loan is simply less risky than a credit advance, which requires repayment and is tied to one's credit rating.

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."

Ms. Yam used the loan to fund her travel and to buy stocks. She has over 40 handbags, including a dozen which are luxury brands.

Manager Irene Chu says Yes Lady typically attracts locals who need short-term cash because they had a bad week in the stock market or have their money tied up in investments. Many, Ms. Chu says, own several bags and don't mind parting with one temporarily while they come up with the money.

To determine the value of the purse, Yes Lady brings in expert assessors from its affiliate Milan Station, a luxury secondhand-purse chain whose stock has tumbled to 39 Hong Kong cents from HK$2.96 since its 2011 IPO.

At Yes Lady's two offices in Hong Kong, Ms. Chu says roughly one in five purse-loan customers are men. Partner company Yes Man Finance Co. is located next door.

One customer, Ms. Chu recalls, brought in 40 or 50 Gucci purses at once. The client received an advance of roughly US$38,000, and later returned to reclaim the bags which he sold in his own store.

Almost all clients at Yes Lady pay the loan back quickly and reclaim their bags, Ms. Chu says.

Locals and mainland Chinese tourists have driven up demand for high-end purses in Hong Kong, where they can be purchased tax free. According to Milan Station's 2011 prospectus, there were roughly 174 luxury branded independent retailers in Hong Kong, with revenue for luxury handbags projected to reach roughly US$4.1 billion in Hong Kong by 2014.

For elite customers, luxury brands have moved from selling signature and classic styles to more exotic variations made from crocodile, ostrich and lizard skins, diamonds and gold, which typically retail above US$12,900.

Secondhand purses are more popular among younger consumers and those who change purses every season.

"I've never seen anyone with a Birkin left out of a party," says Daniel Saynt, chief creative director of digital branding agency Socialyte.co. Few pieces, he says, so recognizably speak to the wealth of their owners.

But the high-end purse trading business is not altogether without risk. Ms. Chu says a number of customers have tried to bring in fakes. "We don't tell them we know," she explains. "We just say we can't approve the loan."