2023-09-12 11:35:33
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Credit card use in Venezuela has plummeted in recent years.
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Do you have a credit card? What is the most expensive good you can buy with it? A plane ticket? A sofa? A television? A supermarket purchase? A movie ticket?
In Venezuela, most people who have a credit card cannot buy even a bottle of water.
“They are of absolutely no use,” says Henkel García, financial analyst and director of the consulting firm Albusdata, to BBC Mundo.
And most cards in that South American country have a limit of just 1 bolivar (about US$0.03).
This is a very small amount, even in a place where the minimum wage of 130 bolivars is already equivalent to less than US$5 per month, due to the drastic loss of value of the Venezuelan currency, which so far this year has gone from 17, 55 per dollar to 33.11 per dollar.
But the loss of usefulness of credit cards has other causes – which go beyond the devaluation of the bolivar – and its consequences have a significant impact on the lives of families.
The effects of hyperinflation
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Inflation and the constant devaluation of the bolivar have affected the availability of credit in Venezuela.
Ángel Álvarado, principal researcher in the Department of Economics at the University of Pennsylvania, explains that the main cause behind this phenomenon is the very high inflation rate that the South American country has suffered in recent years.
“In Venezuela there is no credit because with an inflation of 400%, there is no credit,” Álvarado tells BBC Mundo.
“Hyperinflation destroys financial intermediation. There are no people saving. Who is going to save in bolivars? If there are no people saving in bolivars, there is no credit. And if there is no credit, there is no credit card,” she points out.
In 2017, Venezuela entered a cycle of hyperinflation that lasted four years. According to data from the Central Bank of Venezuela, inflation climbed to an annual maximum of 65.374% in 2018.
The hyperinflationary period ended at the end of 2021, but that has not meant the end of price escalation. In fact, according to estimates from the Venezuelan Finance Observatory for the end of August, the accumulated inflation in the country in 2023 is 144.6%, while the annualized rate (from August to August) amounts to 422%.
According to Henkel García, one of the factors that has led to the unusability of credit cards in Venezuela has been, precisely, the struggle to control inflation.
“Starting in 2018, when it was dealing with hyperinflation, the government took the policy of containing the advance of prices and the exchange rate, literally making the bolivars created through the granting of credit disappear. That practically meant the disappearance of credit in Venezuela and, above all, consumer credit,” says the expert.
To dry up the liquidity that existed in the Venezuelan economy, the government raised the so-called “legal reserve” to historic levels, which is the percentage of resources that financial institutions have to keep deposited in reserve in the accounts they maintain in the Central Bank of Venezuela.
“Since that money is frozen there and you cannot use it, that greatly limits the amount of credits you can deliver,” explains García.
Although after the end of the hyperinflation cycle, the Venezuelan authorities have slightly reduced the legal reserve, it remains at levels that far exceed those existing in other Latin American countries.
According to a comparison published by the Venezuelan media CrónicaUno, the legal reserve in Venezuela is currently at 73%, a level much higher than that registered in Brazil (25%), Uruguay (22%), Colombia (11%), Chile (9%) or Peru (3%).
The disappearance of consumer credit
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Among consumer loans, loans to purchase vehicles have been greatly reduced.
But, beyond the restrictions imposed through the legal reserve, the resources available to banks to lend have also been reduced by the decrease in Venezuelans’ savings.
This is due both to the general impoverishment of the country – between 2013 and 2021, the GDP contracted by 75% – which means that there are fewer people with the capacity to save, and to the fact that with high inflation and an accelerated rate of devaluation, Citizens have no incentive to deposit bolivars in banks, because they know that they will be worth less every day.
On the other hand, giving credit via cards is not good business for banks because the interest rates they can charge are controlled.
“What bank is going to lend you at a rate of 30% if there is 400% inflation? If he lends you, he is going to lose money,” says Alvarado.
Added to all this is the fact that for banks, credit cards imply a significant risk because they are loans without guarantees and, in general, are difficult to collect.
As a consequence of these circumstances, credit cards currently only represent 1.8% of all the money lent by financial institutions in Venezuela, according to figures from the Superintendency of Banks (Sudeban), corresponding to March of this year (last available data). In 2012, they represented 12% of all loans.
In March of this year, all the credits granted in Venezuela in this way amounted to about 391,106,966 bolivars, which was then equivalent to about US$16 million.
According to Henkel García, the bulk of credit activity is concentrated in short-term loans (3 months, 6 months or 1 year) for the agricultural and commercial sector (whose loans are indexed to the dollar).
The expert indicates that loans for the purchase of vehicles have fared worse than credit cards, which in March totaled 9,030,043 bolivars, which at the exchange rate represented about US$368,272.
Living without credit
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The balances available on the credit cards of most Venezuelans are not even enough to buy a bottle of water.
The practical disappearance of credit cards has had an impact on the habits of many Venezuelans who, in the face of the economic crisis that the country has experienced, instead of using them to pay for trips or entertainment activities, often used them to pay for food. or medicines.
According to data from Sudeban, in 2014 – before the worsening of the economic crisis – 13% of the spending made by Venezuelans through credit cards was in supermarkets and 5% went to medical centers and pharmacies. Another 11% went to clothing stores and shoe stores.
Currently, although a few users have higher credit limits than the majority – equivalent to between US$30 and US$100 -, these are meager amounts in a country where the family food basket – required for a family of five – It is above US$500 a month, according to figures from Cendas, a study center on economic and social issues.
But, if they can’t use credit cards, how are Venezuelans meeting their expenses?
“They pay with their savings, if they have them,” says Ángel Alvarado. “Now there is no financial system. The financial system is family and friends, in the cases of those who have family or friends who can help them,” he adds.
Henkel García points out that, beyond the use of savings, some instruments are emerging that allow you to buy products and pay for them in installments.
“It is not a formal credit like a bank can issue, but it does allow the person to buy something and divide their payment into installments,” he points out.
One of these instruments is an app called Cashea and which, as explained on its website, allows you to purchase a product by paying an initial payment and then three equal biweekly installments without interest. Of course, the price of the product and the fees are indexed to the value of the dollar in Venezuela.
Although initiatives of this type cannot replace the services provided by the bank through its consumer loans, they can be a help for those who need to finance some purchases.
For their part, Venezuelan financial institutions have chosen to keep existing credit cards in force, rather than eliminating them – even if it is with a limit so low that it makes them useless – while waiting for better times.
A hope that seems to be shared by many Venezuelans who keep these plastics in their wallets, stored in a drawer at home or who in the meantime have given them a more practical function, using them – for example – as bookmarks.
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