The Medellin city government has opened a state bank that seeks to diminish poor residents’ dependence on loan sharks associated with organized crime.
As private banks are hardly accessible for the poor, loan sharks have taken their place to lend money to residents.
However, these “gota gota” loan sharks often charge as much as 20% interest per month, often aggravating the already precarious situation of the city’s poor and sometimes exposing them to extreme violence.
The local government estimates that these illegal financial services are lending a staggering $124 million a year.
To combat the illegal economy, the Bancuadra will provide loans up to $350 to groups of citizens and small business owners who commit to paying back the debt within three months.
Interest on these government-provided loans is 0.91% per month.
The new financial service is currently being tried out in the center and the northwest of the city where the city government believes the loan sharks are most active.
To reduce risk, the loans are only awarded to groups between five and 10 inhabitants of neighborhoods in the lowest three of six income brackets.
“They are lent money easily, fast, safe, without so much paperwork and without any physical and psychological pressure,” Valentina Aguilar of the Bank for the Poor told local newspaper El Colombiano.
According to Economic Development secretary Maria Fernando Galeano, the pilot project is carried out by 19 officials who mediate between those seeking loans and the Bank for the Poor.
Depending on the success of the project, the government could extend the service to the rest of the city.
