Cuba reforms turn banks into pawnbrokers

Cuba's state-run banks on Thursday were given permission to issue loans based on hard collateral, more than a half-century after pawnshops were banned on the communist-run island.

Fidel Castro abolished such businesses as part of a campaign against lending that also saw the elimination of private banks after he came to power in 1959 in a revolution.

But his brother Raul Castro, who assumed power in 2006 after Fidel stepped down for health reasons, has taken limited steps to liberalize the state-run economy in order to strengthen and extend communist rule.

On Thursday the Central Bank announced in the Official Gazette that branches can now accept property and pledges of property -- including jewelry, vehicles and livestock -- as collateral on loans.

In December banks began offering loans with the security of a bank deposit or a guarantor.

But Juana Delgado, of the policy group overseeing the reforms, told Granma, the island's official communist daily newspaper, that the "new reality" in Cuba led the group to explore other forms of collateral.

"We took into consideration that people do not always have a supportive guarantor or a bank deposit, but they have valuables that can absolutely be considered to constitute a guarantee," she said.

Cubans traditionally turned to family and friends when they needed loans, but the state introduced a new lending policy in December 2011 as part of a cautious overhaul of its Soviet-style economy.

That year the government began encouraging small private businesses, eliminating subsidies, and cutting the size of Cuba's massive bureaucracy.

One of the most important reforms was allowing private car and home purchases, which led to a massive rise in demand for credit.