Financial Desperation Drives Criminal Competition in Peru’s Vulnerable Justice System

Peru is facing a surge in extortion and loan sharking cases, with reports skyrocketing by 370% between 2021 and 2023. The country’s financial vulnerability plays a significant role in this phenomenon.

Extortion on the Rise

According to 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. This trend is expected to continue into 2024.

The Rise of “Gota a Gota” Loans

Predatory “gota a gota” loans, also known as “drop by drop” loans, have emerged as the primary driver of this increase. These loans charge extortionate interest rates and accounted for six times more reports made to the Interior Ministry’s complaints platform than all other forms of extortion combined in 2023.

The Spread of Gota a Gota Loans

Gota a gota loans arrived in Peru from Colombia in the early 2010s and initially spread through the northern regions before reaching Lima and eventually spreading south. In 2023, the capital city alone accounted for half of all reported cases between May and December.

Financial Desperation Drives Demand

Financial desperation is driving individuals to seek out these illegal loans, with around 500,000 Peruvians owing gota a gota debts, according to credit organization FEPCMAC. The most common reason borrowers seek out the loans is to pay off other debts, with many turning to loan sharks due to their lack of access to formal financial institutions.

Venezuelan Migration Contributes to the Problem

The influx of Venezuelan migrants has also contributed to the problem, with around 1.2 million living in Peru and lacking residency status and access to formal credit. A World Bank Group study found that almost half of Venezuelans living in Peru were unbanked in September 2022, while only 5% have received credit from formal financial institutions.

Foreign Competition Enters the Market

Foreign competition is also playing a role, with Venezuelan gangs entering the market and seeking alliances with existing groups to take control. Some Peruvian groups have faced challenges from these newly arrived gangs, while others have formed alliances to compete for market share.

Violent Clashes Erupt

The situation has led to violent clashes between rival gangs, with Tren de Aragua, a transnational Venezuelan mega-gang, taking control of the gota a gota market in at least one part of the country. The group’s presence has been felt particularly among the Venezuelan diaspora, who are often targeted due to their lack of access to credit and financial services.

A Complex Problem Requires Action

As Peru grapples with its financial vulnerabilities, it is clear that the criminal justice system must take action to address this growing crisis. However, the situation remains complex, with foreign competition and domestic desperation driving the proliferation of illegal loans and extortion.