HomeNewsBrief'Colombian' Loan Sharks Fill Void in Honduras Informal Economy: Report
BRIEF

'Colombian' Loan Sharks Fill Void in Honduras Informal Economy: Report

HONDURAS / 15 MAY 2015 BY DAVID GAGNE EN

Money lenders, identified as "Colombian," are reportedly providing high-interest loans to everyone from butchers to tortilla vendors in Honduras, a practice that provides workers in the informal sector with much-needed access to credit but can nonetheless have significant drawbacks.

An investigation by the Honduran newspaper La Tribuna found that in the country's capital city, Tegucigalpa, what locals identified as "Colombians" regularly make micro-loans to workers in the city's informal economy.

"The Colombians help us because nobody lends us money here," one street merchant told the newspaper.

These loans enable many who work in Tegucigalpa's street markets to pay for basic necessities and invest in their businesses, the report said.

"Generally, you take out a loan to cover domestic expenses, because I do it when I don't have enough money to pay for electricity or to buy corn flour," a tortilla vendor told La Tribuna. 

However, a high interest rate  -- roughly 20 percent per month -- can make it difficult for some borrowers to pay back the Colombians on time, a period the article said was 23 days. This can lead to threats and even killings of those who are tardy in making their loan payments, according to street vendors. 

However, low-income workers may soon be able to free themselves of exorbitant interest rates and the threat of retribution. The tortilla vendor said within the last few weeks the government had offered her a loan with a one percent interest rate.  

In addition to Tegucigalpa, "Colombian" money lenders are also providing financial services in the provinces of Cortes and Olancho, reported La Tribuna.

InSight Crime Analysis 

Loan sharking is one of the oldest organized crime activities in the world. And the investigation highlights why people do it: these micro-loans fulfill a need for a large percentage of Hondurans that would otherwise have no credit on which to buy staple goods or invest in their small businesses.

Information on the size of informal economies is scarce, but the the International Monetary Fund (IMF) has estimated (pdf) that Honduras' unofficial sector represented 54 percent of the country's total Gross Domestic Product (GDP) during the early 2000s.

SEE ALSO: Honduras News and Profiles

However, loan sharks can also be involved in other criminal activities such as hired assassination. If borrowers fall behind on their loan payments, they can become vulnerable to extrajudicial punishments, such as beatings or even death. Excessive interest rates can also put low-income workers into significant debt, pushing some victims into forced labor

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