Pawnbrokers Act 1972 Malaysia: Licence Requirements, Interest Caps, and Compliance

The Pawnbrokers Act 1972 governs every licensed pawnshop in Malaysia. Whether you're operating an existing pawnshop or considering entering the industry, understanding the Act's requirements — from the RM4 million paid-up capital to the 2% monthly interest cap — is non-negotiable. This guide covers licensing, compliance, and the penalties you'll face for violations.

Regulatory Authority: KPKT

Pawnbrokers in Malaysia are regulated by the Ministry of Housing and Local Government (KPKT) — not Bank Negara Malaysia, which regulates banks and financial institutions.

The governing legislation is:

• Pawnbrokers Act 1972 (Act 81)
• Pawnbrokers (Control and Licensing) Regulations 2004
• Pawnbrokers (Compounding of Offences) Regulations 2018

The original Pawnshop Ordinance dates back to 1871, but the current framework was significantly updated with the 2004 amendments to enhance consumer protection.

Licence Requirements

Who Needs a Licence?

Anyone conducting pawnbroking business in Malaysia requires a licence from KPKT. Operating without a licence is a criminal offence.

Minimum Paid-Up Capital

Requirement	Amount
Minimum paid-up capital per new pawnshop	RM4,000,000

This high capital requirement ensures only financially stable operators enter the industry. It's significantly higher than many other retail businesses.

Licence Validity and Renewal

• Licence validity: 2 years
• Renewal deadline: At least 60 days before expiry
• Failure to renew on time can result in licence suspension or revocation

Limited Licence Availability

KPKT issues a limited number of pawnbroking licences each year. Unlike coffee shops or retail stores, you can't simply apply and receive a licence — supply is controlled. This is why many operators grow through acquisitions rather than new licence applications.

Premises Requirements

The Act specifies strict requirements for pawnshop premises:

Single-Purpose Premises

No licensee shall use the licensed premises for the conduct or transaction of any business other than pawnbroking. The premises must be dedicated solely to pawnbroking operations.

Security Infrastructure

Licensed pawnshops must have:

• Strongroom: A solid, reinforced room for storing pledged items
• Alarm systems: Advanced security and alarm monitoring systems
• CCTV: Surveillance coverage of operational areas
• Security protocols: Strict procedures to protect customers and employees

Counter Requirements

• Pawn counter height: Maximum 4 feet
• Bulletproof construction
• Stainless steel counters and doors
• Strong rooms with automatic locks and safes

Licence Display

Every licensed pawnshop must prominently display their pawnshop licence. This licence is distinct from a standard business licence — look for the "Pawnbrokers Act 1972" heading, signed by a KPKT representative.

Interest Rate Cap: 2% Per Month

This is one of the most important provisions of the Act:

Regulation	Limit
Maximum interest rate	2% per month
Maximum loan per pawn ticket	RM10,000
Redemption period	6 months

Charging interest above the 2% cap is an offence under the Act.

Unredeemed Pledges: The Law

What happens when a customer doesn't redeem their pledged item within 6 months?

Items Valued at RM200 or Less

Under Section 23 of the Act, pawned items valued at RM200 or less become the automatic property of the pawnbroker if unredeemed within 6 months.

Items Valued Above RM200

Articles valued above RM200 must go through an auction process for disposal.

Critical: The 2023 Court of Appeal Ruling

In the case of Kedai Pajak Shin Ngien Sdn Bhd, the court held that:

• A pawnbroking transaction concludes once a pawned article becomes the possession of the pawnbroker after the customer fails to redeem it
• Selling unredeemed pledges constitutes a "distinct and separate business" — namely, selling second-hand goods
• To sell unredeemed items, a pawnbroker would need a separate second-hand dealer licence

This ruling has significant implications for pawnshop operations and inventory management.

Mandatory Insurance Requirements

The Act requires all licensed pawnshops to maintain insurance:

Why Insurance is Non-Negotiable

• Protects customer pledges against theft, fire, and damage
• Required by KPKT as a licensing condition
• Unlicensed operators cannot offer the same protection
• Many insurers now require certified alarm systems as a prerequisite for coverage

What Coverage Should Include

• All pledged items held on premises
• Theft and burglary coverage
• Fire damage
• Building and property protection
• Liability coverage for customer claims

Standard commercial insurance typically won't cover the unique risks of pawnbroking. Jewellers block insurance provides the comprehensive coverage designed for businesses holding valuable items on behalf of others.

AML/CFT Compliance

Beyond the Pawnbrokers Act, pawnbrokers must comply with Malaysia's anti-money laundering framework:

Your Obligations Under AMLA

• Know Your Customer (KYC): Verify customer identity for transactions
• Record keeping: Maintain detailed customer and transaction records
• Suspicious activity reporting: Report to Bank Negara Malaysia
• Staff training: Regular AML/CFT training for employees

Bank Negara Guidelines

While KPKT issues the pawnbroking licence, Bank Negara Malaysia has supervisory powers over pawnbrokers for AML/CFT compliance. Pawnbrokers must follow BNM's AML/CFT Sectoral Guidelines.

Record Keeping Requirements

Pawnbrokers must maintain comprehensive records:

Transaction Records

• Customer identification details
• Description of pledged items
• Loan amount and interest charged
• Redemption or forfeiture details
• All records must be kept for the prescribed retention period

Pawn Ticket Requirements

Every pawn transaction must generate a pawn ticket containing:

• Description of the pledge
• Loan amount
• Interest rate (maximum 2% per month)
• Redemption period
• Business operating hours

Penalties for Violations

The Act imposes serious penalties for non-compliance:

Offence	Fine	Imprisonment
Unlicensed pawnbroking	RM20,000 – RM100,000	Up to 5 years
Failure to comply with licence conditions	Up to RM50,000	Up to 2 years
Failure to surrender licence	Up to RM20,000	Up to 12 months
Selling unredeemed pledges (Section 41A)	Up to RM10,000	Up to 6 months

Courts can impose both fines AND imprisonment for serious violations.

Real Enforcement Example

In a reported case, illegal pawnbrokering resulted in a RM40,000 fine. KPKT actively enforces the Act — this isn't just theoretical risk.

How to Identify a Licensed Pawnshop

For consumers and business partners, here's how to verify a pawnshop is properly licensed:

Check for Displayed Licence

• Look for the pawnshop licence (separate from business licence)
• Should have "Pawnbrokers Act 1972" heading
• Signed by KPKT representative
• Must be prominently displayed

Licensed vs. Unlicensed Operators

Feature	Licensed	Unlicensed
KPKT licence	Yes, displayed	No
Insurance coverage	Mandatory	Usually none
Security standards	Government-mandated	Variable
Interest rate cap	2% max	Often higher
Consumer protection	Full legal recourse	Limited

The 2004 Amendments: Key Changes

The Pawnbrokers (Control and Licensing) Regulations 2004 introduced significant updates:

• Enhanced consumer protection measures
• Stricter licensing requirements
• Updated security specifications for premises
• Clearer procedures for unredeemed pledges
• Strengthened enforcement provisions

Compliance Checklist for Pawnbrokers

Licensing

• Valid KPKT licence (renewed every 2 years)
• Licence prominently displayed
• RM4 million minimum paid-up capital maintained

Premises

• Single-purpose premises (pawnbroking only)
• Strongroom with automatic locks
• Bulletproof counters (max 4 feet height)
• CCTV and alarm systems operational
• Insurance coverage current

Operations

• Interest rate at or below 2% per month
• Maximum RM10,000 per pawn ticket
• Pawn tickets issued for all transactions
• 6-month redemption period honoured
• Proper procedures for unredeemed pledges

AML/CFT

• KYC verification procedures in place
• Customer records maintained
• Staff trained on AML requirements
• Suspicious activity reporting procedures established

Why This Matters for Insurance

Malaysian pawnbrokers are required by law to maintain insurance covering pledged items. This isn't a suggestion — it's a licensing condition.

For pawnshops holding gold jewellery, watches, and other valuables worth millions of ringgit, standard commercial policies fall short. Jewellers block insurance is specifically designed for businesses that:

• Hold high-value items belonging to customers
• Face unique theft and security risks
• Need coverage that satisfies regulatory requirements
• Require protection for items in transit and on premises

Key Takeaways

• KPKT regulates pawnbrokers under the Pawnbrokers Act 1972
• RM4 million paid-up capital required for new pawnshop licences
• 2% monthly interest cap — exceeding this is an offence
• Licences valid for 2 years, renewal required 60 days before expiry
• Insurance is mandatory to protect customer pledges
• Security requirements include strongroom, bulletproof counters, CCTV, and alarms
• Unlicensed operation carries fines up to RM100,000 and 5 years imprisonment
• 2023 Court of Appeal ruling prohibits direct sale of unredeemed pledges
• AML/CFT compliance supervised by Bank Negara Malaysia

The Pawnbrokers Act 1972 creates a heavily regulated industry — for good reason. Pawnshops hold significant value in customer pledges and serve vulnerable borrowers. Compliance protects everyone: the operator, the customer, and the industry's reputation.