After more than four years of 8% annual growth, the poorest sectors of the Argentine population are gradually recovering their ability to consume. Their quality of life is also improving, thanks to higher salaries and a stronger job market. This trend has been accompanied by a significant increase in non-banking financial services, including credit cards for shopping and doing business; personal loans for making purchases; insurance and money transfers, and cash loans.


According to a recent report by Claves, an Argentine consultancy that specializes in the consumer sector, this market includes “unregulated financial companies (14.7%), private-sector companies (9%), specialized banks and financial services (12.8%), and mutual societies, which have 1.3%. Meanwhile, public and private-sector banks have 62% of the consumer credit market.”


Eduardo Gagliano, president of the AMBA, the marketing association for Argentine banks, notes that in Argentina, “financial services for consumers have been growing in importance because of increased consumption stemming from economic growth over the past four years. You see this reflected especially in personal loans and credit cards, which jointly represent about 30% of the total loans to the private sector.” Gagliano holds a graduate degree from the University of Buenos Aires’ program for the management of financial institutions.


Improvement in Argentina’s financial system would not have been possible without improvement in the country’s indexes for poverty, employment and salary levels. According to a study by Ernesto A. O’Connor of the economics department of UCA, the Argentine Catholic University, “The trend toward increased consumer credit also reflects the average improvement of 21% in salaries. That’s higher than the average inflation rate as calculated by INDEC,” the national census bureau, and by other analysts who forecast an annual rate of 15%.


On the other hand, as the UCA report notes, during the first quarter of this year the income gap between the richest 10% of the population and the poorest 10% of the population fell by 16.7%. Nevertheless, INDEC calculates the unemployment rate at 9.8% of the population.


“It is becoming more and more noticeable that low-income groups in Argentina and the rest of the region are becoming included [in the economy] because macro-economic conditions are now healthy,” states Andrés Méndez, an economist at Finsoport, a private consulting firm. With respect to Argentina in particular, Méndez adds, “We should not forget that the crisis of 2001 removed a great number of potential customers [from the market] who would have had access to credit. Nor should we forget that a growing number of people in every segment are enjoying access to banking services.”


Who is Financing and How


The principal beneficiaries of informal financial services are the self-employed, retired people and those who live off a pension. One of the greatest advantages of private and public banks is that they make fewer demands on customers. All you need is a national identity card (the DNI), the last two statements that show your salary and your utility service (such as light and gas); and a minimum income of $130 per month.  


Heads of households, retired people and pensioners use these localized services to make their small dreams come true. They may want to buy a new television; a heater for the winter, or sports clothes and athletic shoes for the weekend. Or they may want to make a brief trip to visit their family or pay off a debt. Generally speaking, all of their needs do not amount to more than $4,800, which is the maximum amount that financial companies usually provide.


For example, a company called Tarjeta Actual focuses on helping people who live in Alto Valle in the Neuquén region of Patagonia. “Our users may or may not have bank accounts and we offer them the chance to make purchases in this region and in the rest of the country,” notes Norberto E. Etchegoyen, director of Tarjeta Actual, which has annual revenues of about $9.7 million. Activity in this type of service, he says, “is directly related to the current income level of the population and to the economic development that Argentina is experiencing. And in some provinces such as Neuquén, it is tied to exports of fruits and petroleum.”

One of the main advantages of this sort of financial service is that, because it is not a bank credit card, “we can be more flexible when it comes to our demands for qualifying customers for credit. Although people demand much more personalized services, when our customers pay their bills they are a lot more careful than the customers of companies that provide alternatives for boosting consumption,” says Etchegoyen.


When it comes to Tarjeta Actual, purchases “are focused on appliance shops, clothing, food, and sporting goods,” Etchegoyen adds. His company now plans to expand into other small cities in the interior of the country, where workers are barely involved in the banking system.


During the first quarter of 2007, sales of appliances and home products in Argentina increased to $502 million, or 36% higher than a year earlier, according to Ministry of the Economy.


The Other Side of the Coin


Among the clear disadvantages of non-bank services are high interest rates of more than 40% that accumulate on customers’ credit card bills and loans. However, many of the companies that offer these personal loans fail to explain to people on their company web sites and promotional booklets how much borrowers will really have to pay.


According to Méndez, “Perhaps one of the main problems comes from the informal nature of the economy and the fact that it lacks a culture of finance. This much is certain: There isn’t any market data that takes into account how much money moves around in these financial services since they are not regulated by the BCRA.”


According to the report by Claves, the consumer credit market “anticipates strong competition between banks, financial service companies and retailers in the market segment where people have incomes of between $380 and $580 (per month). That is where more people will be coming into the market. Despite fierce competition, however, there will be a trend toward higher interest rates on loans and on financing made through these cards.”


Companies from elsewhere in Latin America have also been tempted to enter this market, including Mexico’s Elektra, which belongs to Grupo Salinas. Elektra has already opened two locations in Buenos Aires where it offers loans that are outside the banking system. In Mexico, Elektra has grown by offering consumers the option to pay off their loans with small weekly payments.


Until now, three brands have positioned themselves as leaders in the local market: retail chain Garbarino, which sells appliances and travel; Tarjeta Naranja [Orange Card], in the market for non-banking credit cards; and SMSV, a military life insurance company.


Regarding the level of debt, Etchegoyen says that following the economic crisis of 2001, “there has been a very significant improvement in the level of payments that are in arrears. To the extent that employment levels improve, customers try to improve the condition of their credit so they can once again buy on credit.” At present, the unemployment level in Argentina is about 9%.


The Challenge for Banking


Méndez says that banks have other issues to deal with as well. “They need to bring in those people who still do not have access to any financial services. What’s more, governmental institutions must confront the challenge of including those sectors that have been left behind the most. More fundamentally, they must aim at reducing the informal economy, which is the principal enemy of open access to financial services, especially in those sectors where income levels are lowest.”


Gagliano agrees, noting that the process of bringing people into the banking system “is a genuine challenge that people will have to address successfully because someone will have to fill the void. Apart from the social importance of providing such loans, the country’s lowest income segment can be the basis for a profitable business where there is a low rate of arrears. Many institutions have already realized this, and they are working hard to achieve it.”