Among the many negative impacts of the COVID-19 pandemic on Colombian society during 2020 was that it ruthlessly exposed the vulnerability of less affluent segments of the country’s population to financial distress. This has serious applications for consumer credit, specifically in terms of creating the pre-conditions for a significant expansion of non-performing loans and delinquent debt.
The economic uncertainty that has emerged in Colombia in the wake of the COVID-19 pandemic has had a very negative impact on the ability of many consumers to access consumer credit. Inevitably, it has been less affluent consumers who have been hardest hit by the corrosive economic impact of the COVID-19 pandemic, with many low-income Colombians faced difficulties due to their revenues been derived from freelance work, informal commerce and short-term contracts.
Faced with a massive slump in consumer spending at the peak of the COVID-19 pandemic during the second and third quarters of 2020, the Colombian government took the bold and unusual step of removing IVA (VAT) from all purchases completed online for a 24 hour period on three separate occasions during 2020. This temporary VAT exemption for online businesses can be seen as a form of economic reactivation.
Although consumer credit had a difficult year during 2020 as many Colombian households faced significant reductions in their incomes, it is expected that the category will bounce back strongly once the wider economic scenario improves as the impact of the COVID-19 pandemic recedes. Moreover, the COVID-19 situation and, in particular, the quarantine lockdown that was in place for an extended period during the second quarter of the year, was seen by many Colombians as an opportunity to make changes to their profligate lifestyles and save money.
One of the major trends in the global financial services industry in recent years has been the increasing interest in analysing the huge amounts of data which can now be collected on consumers and borrowers in the digital age. The insight that can be gained from this data analysis has the potential to completely revolutionise the Colombian consumer lending market, with benefits likely to be passed onto consumers in the form of cheaper, more personalised credit and more streamlined credit application procedures.
During 2020, the financial pressures that many borrowers were facing due to the COVID-19 pandemic and the elevated risk of borrowers defaulting on their repayments that flowed from this led many lenders to offer repayment holidays and/or extensions to the repayment period. While these efforts to ease the financial burden on hard-pressed households have been successful in terms of averting high levels of non-performing loans and widespread delinquent debt during the pandemic situation, there is a possibility that such measures will cause the industry to experience a hangover during the forecast period.
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Understand the latest market trends and future growth opportunities for the Consumer Credit industry in Colombia with research from Euromonitor International's team of in-country analysts – experts by industry and geographic specialisation.
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This report originates from Passport, our Consumer Credit research and analysis database.
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