Financial Crime World

Peru’s Financial Vulnerability Fuels Rise in Loan Shark Extortion

=====================================================

A surge in financial desperation has driven a 370% increase in extortion cases in Peru between 2021 and 2023, with the majority linked to predatory loan sharks demanding exorbitant interest rates. The country’s widespread financial vulnerability has created a breeding ground for criminal activity, with cases of loan sharking and extortion skyrocketing across the nation.

The Rise of Extortion Cases

According to data from the Attorney General’s Office, all but two of Peru’s 34 fiscal districts recorded a rise of at least 150% in extortion reports between 2021 and 2023. The trend is continuing into 2024, with authorities struggling to keep pace with the rapidly growing criminal market.

Predatory Loan Sharks: “Gota a Gota” Lenders

Predatory loan sharks, known as “gota a gota” or “drop by drop” lenders, are driving the rise in extortion cases. These loans, which accounted for six times as many reports made to the Interior Ministry’s complaints platform as all other forms of extortion combined in 2023, have become increasingly popular among desperate borrowers.

  • Gota a gota arrived in Peru from Colombia in the early 2010s and has since spread across the country.
  • The capital city, Lima, accounted for half of all gota a gota cases reported nationwide between May and December 2023.

Financial Desperation: A Breeding Ground for Criminal Activity

Financial desperation is driving many to seek out these loans, with around 500,000 people in Peru owing gota a gota debt, according to credit organization FEPCMAC. Many borrowers turn to loan sharks because they are unable to access formal financial institutions due to their lack of residency status or limited access to the job market.

Economic Struggles and Poverty Rates

The country’s economic struggles, exacerbated by the COVID-19 pandemic, have also contributed to the rise in financial desperation. Poverty rates in Peru rose to its highest level since 2010 in 2023, according to the Videnza Instituto.

Consequences of a Cap on Interest Rates

A cap on interest rates approved by Congress in May 2021 has further worsened the situation, making it more difficult for individuals to access loans from formal financial institutions and driving them into the hands of extortionists.

Foreign Criminal Groups Entering the Market

Foreign criminal groups have also entered the market, with both Colombian and Venezuelan gangs competing for control. Some Venezuelan gangs may seek out alliances with existing groups with an eye on eventually taking over the market.

  • Tren de Aragua, a transnational Venezuelan mega-gang, has already established itself in parts of Peru, exploiting members of the Venezuelan diaspora who lack access to credit.
  • The presence of over a million Venezuelans without access to credit plays into the group’s hands, allowing them to thrive by preying on vulnerable individuals.

Conclusion

As authorities struggle to combat the growing problem of loan sharking and extortion, it is clear that financial desperation will continue to drive criminal activity in Peru unless steps are taken to address the underlying economic issues.