HomeNewsBriefLoan Sharks Circle as Latin America Reels From Pandemic
BRIEF

Loan Sharks Circle as Latin America Reels From Pandemic

ARGENTINA / 3 FEB 2021 BY SHANE SULLIVAN EN

As workers across Latin America struggle to stay afloat amid economic strain caused by the COVID-19 pandemic, loan sharks offering abusive interest rates have cornered the market, forcing workers seeking financial assistance into untenable cycles of debt.

On January 13, authorities arrested members of a suspected network of loan sharks operating in Rosario, Argentina. The members stand accused of running a “gota a gota” or “drop by drop” usury lending operation, named after the way in which victims are bled dry of funds. Operating out of Rosario’s local Producers Market, the loan sharks were caught after being identified by a previous victim – a young man who, unable to keep up with his payments, had been shot by one of the lenders.

This problem has been a regional one. According to a recent interview in La Prensa Gráfica, a tortilla vendor in El Salvador, who secured a $500 loan prior to the pandemic, has had to take out two additional loans to repay the first, as months of quarantine caused the loan shark to demand back payments. To maintain three loans simultaneously, she dedicates $9 of her daily earnings of $11 to cover the loans, leaving her $2 to provide for her three children and one grandchild. And yet, referring to the loan sharks, she said, “I would not think of reporting them. In a certain way, they help people.”

SEE ALSO: ‘Gota a Gota’ Extortionists Expand in Bolivia by Preying on Venezuelan Migrants

In Colombia, the economic consequences of protracted lockdowns and a lack of access to the banking system meant that up to 7 million people were identified as vulnerable to “gota a gota,” according to financial institutions last May. “Over 50 percent of Colombian homes … have used ‘gota a gota.’ This use is stronger in micro-enterprises and independent workers, without forgetting that many salaried workers also use it,” José Alejandro Guerrero, president of Banco W, told El Universal.

Loan sharks have certainly pounced on the desperation seen throughout the pandemic. A study by Central University (Universidad Central) in Colombia revealed that, since the imposition of quarantines, interest rates have climbed to 210 percent, as opposed to between 20 and 66 percent before the pandemic.

InSight Crime Analysis

Usury lending practices have long been prevalent in Latin America, with Colombian gangs mostly driving their expansion, but the COVID-19 pandemic has raised the stakes, as vendors and small businesses put out of work by protracted quarantines are desperate for financial relief. With many government assistance programs falling short, workers are forced to choose between financial ruin or abusively high interest loans.

Solutions have been few and far between. In November, a local government in Colombia began expanding small, low-interest loans to those struggling to make ends meet, building on previous successes achieved in this way.

In Mexico City, one lawmaker is seeking the creation of an economic recovery plan dedicated to those at risk from loan sharks. In November, Victor Hugo Lobo, president of the Political Coordination Committee in the Mexican capital’s assembly, stated that “the acute economic crisis has forced small shopkeepers … to resort to South American loan sharks and are now caught in a system of semi-slavery.”

SEE ALSO: Corruption and Graft Afflict Latin America’s Pandemic Response

And in late December, Peru’s congress approved a bill allowing banks to offer zero-interest loans. However, the government rejected the law, stating that it would make it more difficult for the poorest Peruvians to access banking services.

“This is another lovely example of adding a lack of knowledge to good intentions. It’s an atomic bomb … this law will make it so the most modest (households) cannot get loans. Where will they do so? In the informal market,” said Economy Minister Waldo Mendoza in an interview with a local tv station.

Last July, a study by Peru’s central bank found that loan shark annual interest rates had reached as high as 792 percent.

While the new law in Peru is well-intentioned, the government criticisms are valid. With only 45 percent of Peruvian adults having bank accounts, such relief packages may have uncertain consequences such as banks only providing interest-free loans to clients with collateral, again excluding the most vulnerable.

Compartir icon icon icon

What are your thoughts? Click here to send InSight Crime your comments.

We encourage readers to copy and distribute our work for non-commercial purposes, with attribution to InSight Crime in the byline and links to the original at both the top and bottom of the article. Check the Creative Commons website for more details of how to share our work, and please send us an email if you use an article.

Was this content helpful?

We want to sustain Latin America's largest organized crime database, but in order to do so, we need resources.

DONATE

Related Content

BARRIO 18 / 8 MAY 2015

El Salvador's president has announced the deployment of military brigades to contain the country's street gangs, a measure that will…

KIDNAPPING / 22 OCT 2012

Mexican authorities have found the body of a fourth taxi driver killed by a band of kidnappers and buried by…

EL CHAPO / 30 APR 2013

US authorities planned Joaquin "El Chapo" Guzman's capture during Mexico's previous administration, according to a respected Mexican news source, but…

About InSight Crime

THE ORGANIZATION

We Have Updated Our Website

4 FEB 2021

Welcome to our new home page. We have revamped the site to create a better display and reader experience.

THE ORGANIZATION

InSight Crime Events – Border Crime: The Northern Triangle and Tri-Border Area

ARGENTINA / 25 JAN 2021

Through several rounds of extensive field investigations, our researchers have analyzed and mapped out the main illicit economies and criminal groups present in 39 border departments spread across the six countries of study – the Northern Triangle trio of Guatemala, Honduras, and El…

BRIEF

InSight Crime’s ‘Memo Fantasma’ Investigation Wins Simón Bolívar National Journalism Prize

COLOMBIA / 20 NOV 2020

The staff at InSight Crime was awarded the prestigious Simón Bolívar national journalism prize in Colombia for its two-year investigation into the drug trafficker known as “Memo Fantasma,” which was…

ANALYSIS

InSight Crime – From Uncovering Organized Crime to Finding What Works

COLOMBIA / 12 NOV 2020

This project began 10 years ago as an effort to address a problem: the lack of daily coverage, investigative stories and analysis of organized crime in the Americas. …

ANALYSIS

InSight Crime – Ten Years of Investigating Organized Crime in the Americas

FEATURED / 2 NOV 2020

In early 2009, Steven Dudley was in Medellín, Colombia. His assignment: speak to a jailed paramilitary leader in the Itagui prison, just south of the city. Following his interview inside…