Gadai

Gadai refers to a pawnbroking transaction common in Indonesia, Malaysia, and other Malay-speaking areas. In a gadai, a borrower pledges movable property as collateral in exchange for a short-term loan from a pawnbroker. The lender assesses the collateral’s value and offers a loan amount that is typically a fraction of that value. The borrower can redeem the item by repaying the loan and any agreed-upon interest or fees within a set period. If unpaid, the pawnbroker may sell the collateral to recover the debt.

Common collateral includes gold jewelry, electronics, watches, bicycles, motorcycles, and other valuables. The item is kept by the pawnbroker or a storage facility until redemption. Renewal or extension is sometimes possible for an additional fee. Some providers offer gadai under Sharia-compliant terms, where the agreement substitutes interest with an agreed profit margin and adheres to Islamic finance principles.

Gadai serves as a source of rapid liquidity for households, particularly those without access to formal credit. It operates in a competitive market with specialized lenders and, in some countries, state programs. Terms, interest rates, and redemption rights vary by jurisdiction and by lender. Most jurisdictions require licensing and impose consumer-protection rules, disclosure requirements, and limits on fees. Critics point to the potential for high costs, loss of valuables, and opaque terms. In practice, borrowers should compare terms, understand the total cost of borrowing, and be aware of the consequences of default. See also pawnshop and collateral loan.