An Equifax study determined that the problem around formal credit in Ecuador is not the interest rate, but access. The main victims of the ‘chulco’ are women heads of the household.
People who seek credits from the ‘chulco’ or informal lenders prefer to pay high interest rates, because they think that they will get the money they need faster and without submitting to procedures of the formal financial system.
This is revealed by the study called ‘Impact of the informal financing market in Ecuador’, carried out by the Equifax credit bureau in August 2021.
To obtain its conclusions, Equifax interviewed 113 people who agreed to informal loans in the three main cities of the country: Quito, Guayaquil and Cuenca.
The people surveyed assure that To access informal credits, unlike formal sources, el chulco offers:
- Immediate and easy access to money.
- Few requirements.
- Money to cover an emergency.
- Chulqueros’ money is available 24 hours a day.
Although they recognize that all these ‘advantages’ come at a price: the interest rate they must pay is very high.
Those who receive loans from the chulqueros pay a daily interest of 3.44%, that is, 103% per month and 1,238% per year.
But people who access loans in the informal market do not really know how much they pay in interest.
64.56% of those interviewed believed that their interest rate was between 10% and 20% per month, but the rate could be as high as 103%.
They don’t really know how much they pay in interest.
Another high cost faced by those who go to the chulco is the additional daily surcharge for each day of arrears in credit payments and the constant threats from the chulqueros.
42.86% of those interviewed said that, if they are late, informal lenders charge an additional value for each day of delay.
Meanwhile, 19.05% of the people recognized that the moneylenders (chulqueros) usually tolerate up to a day of delay, but then they charge double the fee.
The study indicates that 41.3% of the surveyed population must pay all of the money received within a maximum period of 30 days.
Money for merchandise
Seven out of 10 people who seek informal loans (71.8%) ask for amounts below USD 500, according to the study.
The money obtained with the loans of the chulqueros is destined, above all, to three activities: purchase of merchandise to sell; purchase of food and payment of services, or to start or expand a business (see graph):
According to the study, people with the lowest economic income are among those who request the most money from the chulquero and the group most affected is that of women head of household: 52.7% of those who access informal loans belong to this segment of the population.
They would prefer banking
The disadvantages in access to financing in banks and cooperatives savings and credit was questioned by people who opted for loans in the informal market.
Although they consider that the loans from banks and cooperatives are better and safe, the interviewees say that the loans of the formal financial system present various obstacles.
Among them: a long time to access a loan and too many procedures and requirements, as shown in the following graph:
Precisely, the study concluded that the problem around formal credit in Ecuador is not the interest rate, but access.
In the midst of this panorama, the authorities of the national financial system are working to expand financial inclusion so that fewer people turn to methods such as the chulco.
The problem around formal credit in Ecuador is not the interest rate, but access.
And there have been advances, according to the latest figures from the Central Bank, the number of people with access to financial products and services rose from 4.8 million to 8.5 million between 2016 and 2020.
As of September 2020, the country had 186 financial institutions, of which 24 were private banks, 156 were savings and credit cooperatives, four were mutual and two were public banks.
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