Almost 400,000 people living in poverty cannot enter the formal banking system, instead accessing illegal loans that support organized crime in Medellín. These illegal loans, called “pagadiarios,” affect more than 36 percent of the population and are used by people to support their employment, cover life-threatening emergencies, and meet their daily needs. Organized criminals subject their clients to a stubborn circle of poverty, charging interest rates of up to 700 percent annually. This corrupt system uses violence and intimidation as a collection tactic, targeting those who are the most vulnerable and marginalized from the financial system. Violent crime is one of the most critical issues facing cities across the region, and Medellín is demonstrating that mayors can take the lead in safeguarding the security of their citizens.
The city will tackle these challenges through Bancuadra, “the world’s smallest bank.” Bancuadra is a network of neighbors who pool their financial resources. It provides access to credit, loans for work materials, and a jobs bank, with no complex procedures or requirements to join. Neighbors can make withdrawals at authorized central locations in their own neighborhood, like local businesses. These services operate on a digital platform accessible through multiple devices, and users are sent by text messages to ensure the traceability of transactions.
Bancuadra is inspired by the collaborative economy and shared value principles. It intends to solve a complex social problem with an economically sustainable business model, which is mediated by technology and will enhance collaboration at a local scale.
Words from Medellín
“Our idea is a great opportunity to create a municipal venture aimed at offering easy, quick, and safe credit access to more than 36 percent of the population of Medellín.”