(Q COSTA RICA NEWS) Purchasing appliances, acquiring quick loans or paying for courses in installments are some of the reasons why Costa Rica’s poor households devote a high percentage of their income to debt maintenance.
According to the twenty-second State of the Nation report (Vigésimo Segundo Informe del Estado de la Nación), on average, the most humble families allocate ¢43,973 monthly to amortize their financial commitments. (Click here for previous reports)
That figure may see low, but for these households, it represents 16% of their income.
The study revealed that, despite the fact that the wealthier households carry an average monthly consumer debt of ¢243,455 colones, the amount represents only 11% of their income.
The report used the Income and Expenditure Survey, carried out by the National Institute of Statistics and Censuses (INEC) in 2013, to study the use of credit by families.
The research found that, due to their low financial resources and excessive requirements, the lower-income group does not have the option of accessing formal loans and turn to businesses that offer appliances, services, consumer goods and travel, among others, on fast credit with easy payments.
The names in the market vary, but their offers are similar, low weekly or bi-weekly payments, easy credit and take home today, from a major appliance, to a flat screen television or simple rice cooker.
“When we see households that use commercial (non banking) loans the most, we find it is of people from rural areas, with lower-income and lower educational levels,” said Pamela Jimenez, heading the 22nd chapter of the State of the Nation report.
Counterproductive. The high level of indebtedness of the poor families ends up being an adverse consequence of an option that, in principle, serves for those households to increase their consumption capacity that generally comes with high interest rates.
That is these consumers are lured in by the low payments, ignoring that the payment terms (“quotas” in Spanish) can be 48, 60 or even 72 months or more, in most cases doubling or tripling the initial cost of the item if it were paid in cash (“contado” in Spanish).
The report proposes to evaluate that the commercial companies that they be supervised by the General Superintendence of Financial Entities (Sugef), to control the risks of delinquency and to know the behaviour of the market and consumers.
However, Javier Cascante, head of the Sugef, explains that this would require legal reform, as well as incorporating the information of the businesses that sell on credit to the Central de Información Crediticia (CIC) – Central Credit Information, which already includes data from the Formal financial entities.