A local government in Colombia is offering small loans at low interest rates to people struggling to make ends meet during the coronavirus pandemic, to help them move away from one of Colombia’s oldest criminal economies – the usurious loan “gota a gota”.
The department of North Caesar has made around $ 850,000 available to 3,000 microentrepreneurs in sectors such as food, shoes, clothing and stationery to try to prevent illegal loans, El Tiempo reported. Named after the way victims are slowly drained of funds, the ‘gota a gota’ or ‘drip’ tactic involves lending small amounts of money at interest rates of up to 800%. per year to people who cannot get formal loans.
Loans from the Cesar government range from 200,000 to 2 million pesos ($ 55 to 550) and have an interest rate of 1.6% per month. Loans can be repaid over three years.
When Governor César Luis Alberto Monsalvo announced loan program, he said the loans were a way of “attacking gota a gota”, which “afflicts so many small traders”.
The loan program was started in Bosconia, a municipality in the north of Caesar which is home to hundreds of small businesses affected by the pandemic. According to the mayor, unemployment has risen to more than 30 percent this year.
By mid-November, 30 loans worth 45 million pesos (about $ 12,400) had been made in the city. The program is expected to extend to 24 municipalities in the Caribbean department.
InSight Crime Analysis
A small loan program like the one proposed by Caesar’s government has had some success in the Colombian city where gota a gota was born: Medellin.
Gota a gota first settled in Medellín in the 1990s, as a means of laundering the proceeds of drug trafficking, Connectas reported in a recent survey of the practice. Today, up to 2.8 billion (approximately $ 800,000) are displaced every day in Colombia through these networks, according to a study by the Central University of Bogota.
The practice has also become one of Colombia’s most successful criminal exports. In recent years, Colombian mafia groups have been accused to manage gota a gota projects in Brazil, Chile, Peru and Mexico. According to Connectas, gota has gota loan operations Was found in at least 16 countries.
Law enforcement officials have found gota a gota particularly difficult to eradicate in Colombia, as cash is often a lifeline for many shop owners and people operating in the informal economy.
For this reason, in 2017, Medellín built a new microcredit program known as Bancuadra, where borrowers form “networks of trust” of five to 19 people. Usually made up of family members, friends or neighbors, each member of the network received money that could be used for business or household expenses.
The loans ranged from 200,000 to 1.8 million pesos ($ 55 to 500) at extremely low interest rates. The network has banned further borrowing until all members have paid off 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 report. city government press release. The Medellín program had also reduced the use of illegal borrowing by borrowers, according to a study by researchers from EAFIT University of Medellin.
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