Microfinance Programs Fight Back Against Loan Sharks in Colombia

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A local government in Colombia is offering small, low-interest loans to people struggling to make ends meet in the coronavirus pandemic, to help steer them away from one of Colombia’s oldest criminal economies – “gota a gota” loansharking.

The northern Cesar department has made about $850,000 available to 3,000 microentrepreneurs in sectors like food, shoes, clothing and stationary to try to keep illegal lending at bay, El Tiempo reported. Named after the way in which victims are slowly bled dry of funds, the “gota a gota,” or “drop by drop,” tactic consists of lending small sums of money at interest rates as high as 800 percent per year to people who cannot obtain formal loans.

The Cesar government’s loans range from 200,000 to 2 million pesos ($55 to $550) and have an interest rate of 1.6 percent per month. The loans can be repaid over three years.

SEE ALSO: Colombia’s Gota a Gota Loan Sharks Exploit Chile Market

When Cesar Governor Luis Alberto Monsalvo announced the lending program, he said the loans were a way to “attack gota a gota,” which “afflicts so many small shopkeepers.”

The lending program was launched in Bosconia, a municipality in the north of Cesar home to hundreds of small businesses impacted by the pandemic. According to the mayor, unemployment has increased to above 30 percent this year.

By mid-November, 30 loans worth 45 million pesos (about $12,400) had been extended in the town. The program is expected to expand to 24 municipalities within the Caribbean department.

InSight Crime Analysis

A small loan program like that offered by the government of Cesar has shown some success in the Colombian city where gota a gota was born: Medellín.

Gota a gota first took hold in Medellín in the 1990s, as a way to launder drug trafficking proceeds, Connectas reported in a recent investigation into the practice. Now up to 2.8 billion (about $800,000) are moved daily in Colombia through such networks, according to a study by the Universidad Central de Bogota.

The practice has also become one of Colombia’s most successful criminal exports. In recent years, Colombian mafia groups have been accused of running gota a gota schemes in Brazil, Chile, Peru and Mexico. According to Connectas, gota a gota loansharking operations have been found in at least 16 countries.

SEE ALSO: Colombian Loan Sharks Expanding Internationally

Law enforcement has found gota a gota especially difficult to stamp out in Colombia, because the cash is often a lifeline to the many shop owners and people that operate in the informal economy.

For this reason, in 2017, Medellín built a novel microlending program known as Bancuadra, where borrowers form “trust networks” of five to 19 people. Usually made up of family, friends, or neighbors, each network member received cash that could go to business or household expenses.

The loans ranged from 200,000 to 1.8 million pesos ($55 to $500) at extremely low interest. The network prohibited taking out further loans until all members had settled their debts.

By the end of 2019, the program had loaned 3.4 billion pesos (about $950,000) to some 2,900 communal networks, benefiting more than 14,000 people in Medellín, according to a city government news release. The Medellín program had also reduced borrowers’ use of illegal loans, according to a study by researchers at Medellin’s EAFIT University.

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