Peru’s Financial Crime Epidemic: Loan Sharks and Extortion Soar Amid Desperation

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Peru is facing a severe financial crime crisis, driven by widespread vulnerability and desperation. The country has witnessed a staggering 370% increase in extortion cases between 2021 and 2023, with loan sharking and “gota a gota” (drop-by-drop) loans fueling the surge.

The Rise of Predatory Lending Practices

Predatory lending practices, particularly gota a gota, have become rampant in Peru. Borrowers are paying exorbitant interest rates, and the practice has spread rapidly across the country. By late 2017, 97 cities were affected by gota a gota.

• In 2023 alone, gota a gota accounted for six times more reports to the Interior Ministry’s complaints platform than all other forms of extortion combined.
• Lima, the capital city, is at the epicenter of the crisis, accounting for half of all gota a gota cases reported nationwide between May and December 2023.

Financial Desperation Drives the Crisis

Financial desperation is driving the surge in victimization. Around 500,000 Peruvians owe gota a gota loans. Many borrowers seek these loans to pay off other debts, while others are forced into the scheme due to lack of access to formal financial institutions.

• The country’s 1.2 million Venezuelan migrants, many without residency status and working in the informal job market, are particularly vulnerable.
• Peruvians themselves are struggling, with poverty levels reaching their highest point since 2010.

Foreign Competition Exacerbates the Crisis

Foreign competition is also fueling the crisis, as Venezuelan gangs have begun to challenge traditional Colombian groups. Some Venezuelan gangs are seeking alliances with existing groups, aiming to eventually take control of the market.

• Tren de Aragua, a transnational Venezuelan mega-gang, has already achieved this in at least one region of Peru, exploiting vulnerable members of the Venezuelan diaspora.
• The group’s presence has been linked to extortion and violence in areas such as Arequipa.

Authorities Struggle to Keep Pace

As the crisis deepens, authorities are struggling to keep pace with the growing problem. Experts warn that the situation is likely to continue deteriorating unless urgent action is taken to address the root causes of financial desperation and gang activity.

Featured image: A passerby reads an advertisement for a loan in Peru. Credit: Interior Ministry of Peru