Consumption and credit among the poor: assessing “parallel” market features and behavior towards cash-consumer credit among low income households in Uruguay Cecilia Rossel November 17 th, 2014

Consumer credit in LA Consumer credit access has been growing in most of Latin American households for the last two decades Part of this process relates to the expansion of the banking system and credit cards, which derived in the financial inclusion of a growing middle class But the growth in consumer credit is also explained by the opportunity for accessing these type of credit that non-banking financial institutions (including cooperatives, retail stores, cash credit institutions) started providing for lower income and poor families

Objectives Describe the consumer credit market and its significance in Uruguay, by focusing on the micro dynamics of access to consumer credit and consumer credit borrowing in low income families. Three descriptive questions: –(i) what are the main features of the formal and informal cash-consumer credit market in Uruguay and how does it work? –(ii) what are the attitudes and practices of the poor population towards consumption and credit? –(iii) what are the new risks and vulnerabilities –if any- that emerge from taking credits through this market?.

Methods & data (i) Secondary information Mystery clients strategy Experts’ interviews In-depth interviews

Main results A growing market with aggressive strategies to attract low income and poor clients, not always transparent, that seems to be achieving its goals A precarious access to financial products in financially excluded population A strong association of NBFI credit market with low income and poor population (with a monthly or weekly link in all cases!) A rational/self-limiting discourse but with high levels of multiborrowing and, in some cases, over-indebtedness Solidarity and networks as a by-pass to the obstacles imposed by the credit score-card and the “debtor list” Over-indebtedness as a stressful/trapping situation, that is coped –or at least faced- through different strategies

Policy implications & challenges Regulation challenges regarding: –information provided to consumers –practices of adding benefits –reporting to governments authorities –interest rates & credit conditions Financial education to low income and poor families, including basic tips for understanding credit and guides for managing financial situation and avoid over-indebtedness