Most are women and head of household. The average amount they borrow is USD 500, which they request each month, with interest that can reach more than 1,238% per year. These are the main characteristics of the informal credit market dominated by the chulco.

The study Impact of the Informal Financing Market in Ecuador, by the Equifax credit bureau, which was carried out this month and was presented yesterday, shows how usury operates in three cities: Quito, Guayaquil and Cuenca. The results are based on in-depth interviews with 113 people who use this informal financing option.

The majority of those surveyed said that it is the usurer who first contacts them, although they also come on the recommendation of someone they know. And 51% use it to finance their business or start a new one.

María Caza, 40, is a clothing merchant in El Tejar, in downtown Quito. She has been asking the chulco for money since 2014 to pay suppliers or purchase merchandise. “In this environment, we all know those who are dedicated to lending money and when one needs it, they are just looking for it.”

Seven out of 10 people, who access informal loans, request amounts less than USD 500 and almost half must pay the money in 30 days or less, according to the study.

The majority of borrowers, like Caza, go to the chulquero for the ease and speed of the loan. The last loan she made was three weeks ago to purchase merchandise. She asked for USD 1,000 for two months and says that she will pay 10% interest. In times of increased commercial activity, such as Christmas, she has made loans of up to USD 7,000.

The study reveals that the majority of those consulted believe that they pay a monthly rate of 10% to 20%, but in reality it is 103% monthly, or in annual terms, 1,238%.

In banking, the lowest rate corresponds to social housing credit, which is 4.9% per year, and the highest to microcredit, 28.5% per year. When rates exceed these legal ceilings, it is usury, which is punishable by five to seven years in prison in the country.

#Gemini it's a day to sit back and let yourself rest. Being productive isn't in the cards. Traveling can be stressf… https://t.co/YYN2e3qRKN

— The Quietest Revolution Thu Aug 06 07:19:50 +0000 2020

Due to these high costs, the majority of those surveyed (60%) are interested in accessing formal credit in banks or cooperatives, but they do not do so because it takes too long and demands a series of requirements in procedures.

The agreement that Caza makes is verbal and each payment is recorded in notebooks with signatures and dates, both from the lender and from the client. “I know it's not legal, but it's easier for me than going to a bank where they ask me for papers. I don't waste time doing paperwork."

For the man from Guayaquil, Aurelio Mosquera, chulco has also been the fastest way to have money.

In the last four years he has requested about USD 12,000. He takes out informal loans up to twice a year. The first time he accessed a loan of USD 3,500, with jewelry as collateral, was in 2016, to pay hospital expenses, funeral expenses and credit card debts of his wife who died. That amount was canceled after two months, after taking out a loan at a cooperative.

David Castellanos, a consultant in charge of the Equifax study, says that the chulqueros ask borrowers for guarantees such as home mortgages, property deeds and more, who often lose.

According to the Association of Private Banks (Asobanca), interest rates are governed by maximum ceilings that do not take into account technical criteria, and impose caps on the rate that can be charged in each segment.

"This has caused the rates to not be able to cover those people who have a higher risk, generating financial exclusion," said the union, noting that the procedures required in banks are governed by legislation and regulations.

For Castellanos, the new interest rate system, which works with the Central Bank, must respond to the risk profile of each person, to generate new inclusive segments or reform existing ones. “The problem is not the rate, it is access. Now there is an opportunity to re-include people in formal credit”.