The cajas de compensación (private social-security institutions) detected a dual reality, with a segment of people who have a level of debt comparable to that of a developed country and another group with less access to quality credit. The entity advocates regulation to reduce over-indebtedness and create a law that fosters social savings at the same time.
They are the third largest lender in Chile, together with traditional banks and the disruptive Fintech sector. The cajas de compensación make 1.5 million annual loans for a potential universe of 7 million people, including the economically active population and retired people.
Tomás Campero, president of Cajas de Chile, the association of the cajas de compesación, highlighted the results of a recent study on financing and indebtedness among Chilean families --the “Financing and indebtedness of households in Chile”, prepared by economist Claudio Raddatz.
“40% of lower-income families have a debt that can be considered over-indebtedness, that is, they have a financial burden that demands 50% of their income, and that is a worrying figure,” he tells AméricaEconomía .
This is consistent with the 2023 Debt Report , issued at the beginning of the year by the Financial Market Commission (CMF), which detected the same worrying reality: one in five borrowers were under high financial burden, greater than 50% of their monthly income. Meanwhile, bank debt was $2.2 million, while the financial burden and leverage indicators were 16.1% and 2.8 times the monthly income, respectively.
The Cajas de Chile's view on is that although Chile has made progress in having a market and financial solutions for different groups of the population, a dual reality is present, with a segment that has a level of access and indebtedness that is comparable to that of an advanced country.
“But at the same time there is another group of the population with lower incomes, which has less access to products and less access to quality credit,” he emphasizes.
The entity considers that said different realities require different measures to address the problem and they have told this to the authorities and different financial sector players.
“[As a country] we should move forward in having a debt consolidation law because with this, both families and financial actors will be able to know all their debts, make better evaluations, unify them and thus be able to get out of these types of problems,” indicates Campero regarding the project, which has been in the legislative review for 13 years.
The government-run Financial Market Commission (CMF) considers that this consolidated debt registry will allow better visualization of global indebtedness of borrowers, their behavior over time and their lenders. This way, they will be able to access better credit conditions regularly.
A recent report by the CMF's president, Solange Bernstein, asserts that it will provide greater competition and better terms in contracting debt, with better credit conditions of rate and term to good payers, who can "carry" their credit history and benefit from it.
“Conditions are created to better control over-indebtedness, and improve consumer protection and risk management by financial entities,” the CMF board of directors indicated in a presentation to the Senate last June.
In addition, the bill is complementary to regulatory initiatives such as Basel III (which proposes banks to increase capital reserves to protect themselves from possible failures), the Consumer Protection Law, and the recently enacted Fintech Law.
One of its provisions also expands the number of entities reporting positive debt, reaching insurance and mutual insurance companies, cooperatives not supervised by the CMF, and compensation funds.
“60% of those we lend have some type of negative business history. We believe that this is not an impediment to being able to make you an offer to obtain credit and reorganize your debts. So we believe that these types of things should be promoted more. We don't just want them for ourselves, we want the other actors to also play a role in accompanying the family in reducing their level of over-indebtedness,” says Campero.
However, it is not the only step for Chilean households to get out of debt.
In November of last year, the so-called Over-Indebtedness Law began its road in Congress. This is four-pillar initiative that establishes a guarantee program to allow refinancing of over-indebted people; regulates the minimum payment on credit cards; modifies the Fraud Law and introduces modifications to the Special Guarantees Fund (Fogaes) that was created to allow access to housing for the most vulnerable sectors.
In total, the government estimates refinancing US$563 million with fiscal cost of around US$23 million annually, corresponding to the guarantees collected by financial institutions in the event of non-payment of a refinancing.
ROLE OF CAJAS
Created 70 years ago, inspired by the welfare state of post-war Europe, the four Chilean cajas de compensación – Los Andes, Los Héroes, 18 de Septiembre and La Araucana – are private institutions, with multiparty directorates, non-profit and self-financed, which support dependent workers, pensioners and their families with social benefits in different areas of health and well-being.
Their continued existence is explained by success in adapting over the years. Something they are always willing to do.
“Just as a fintech law was discussed in Chile, there could be a law that modernizes some of the aspects of the savings banks so that they are more sustainable and can grow,” says the director of the Savings Banks of Chile.
Cames' believes that if there are higher loan provisions due to Basel III, for example, there must be a good balance in terms of not limiting access to financing, which is already limited for savings banks. "We, unlike banks, do not have access to the central bank window, nor to the facilities that this entity provides. So, if we are going to have greater demands, it would be good that we also have those instruments that allow us to better access to financing lines in the market, with the support of the central bank," he indicates.
On the other hand, the savings banks make loans, but do not raise resources, which means that they are not authorized to provide an offer to workers to generate certain savings.
Another worrying fact, along with high debt Chile, has low savings rates compared to other countries in the world. According to OECD figures, the latter is close to 10%, calculated on disposable income.
A reality that the savings banks and some parliamentarians will seek to change, with a recent proposal to modify the current law that governs them, aimed at offering social savings accounts the same way they can offer social credits.
“Today we do not see another actor, apart from Banco Estado, that encourages savings among Chileans. We need more actors interested in collaborating in savings. So, we believe that we must advance new regulations for the savings banks and one of them is that they be enabled to have social savings accounts in order to also be able to offer more benefits and also another possibility of savings to these workers,” Campero concludes.
