TBY talks to Carlos Eduardo Polo Parada, General Manager of Inversiones La Cruz, on the importance of small loans, reaching unbanked Peruvians, and the future of micro-loans within the financial sector.

Carlos Eduardo Polo Parada
Carlos Eduardo Polo Parada is Founder and CEO of Inversiones La Cruz. Inversiones La Cruz has been in the Peruvian market for about 20 years. Eduardo Polo is an accountant by profession. He earned a Master of Business Administration (MBA) from the INCAE Business School and the University Adolfo Ibáñez. He is also Partner-Director of the chain secured loans Credimás of Honduras, Nicaragua, El Salvador and Prendamás in Bolivia.

What is the role of Inversiones La Cruz in the financial sector of Peru?

We are specialists in offering microcredits with collateral ranging from $100 to $2,000 that are repaid within between one and four months. We offer these credits nationwide and concentrate our services in Lima and Peru's provinces. Inversiones La Cruz has grown both geographically and in volume terms, and today has more than 75 agencies and with a future projection of 90 by the end of 2015. We are the first financial entity in the Alternative Stock Exchange (MAV), which has more flexible procedures than the Bolsa de Valores de Lima (BVL) and allowed us to do our first issuance just six months after embarking on this project.

Are you focused mostly on individual clients or do you also provide credits to SMEs?

Today, 100% of our customers are individuals. Throughout the years, we have been able to 'bank' many customers who relied on informal channels. One should bear in mind that we have been working in Peru for 20 years, in Bolivia for 15, as well as in four other countries in Central America.

Why has Inversiones La Cruz been so successful given heavy competition?

Ours is a niche business model, and has been successful precisely because we have satisfied a clear demand. Around half of our clients are unbanked, and when seeking credit, they lack a credit record, which is where we come in. We have succeeded through specializing in credits with collateral such as gold jewelry, vehicles and diverse articles such as electronic devices, kitchen appliances, and mobile phones.

Peru's economy suffers from a high level of informality. Does competition from informal lenders present a significant growth challenge?

On the contrary, the informal channel and moneylenders are a great opportunity, since potential and regular clients prefer an institution that offers them better terms and conditions, transparent operations, and the security we offer for their possessions, jewels or vehicles. We see this opportunity growing on the outskirts of modern Lima and in many provinces of Peru.

Some critics have said that this type of short-term lending is “predatory" because of its high interest rates when compared to standard bank loans. What would you say in response?

Standard bank loans are much higher than ours and are long term. Ours is a short-term loan that averages $400 per loan, and is mainly used for emergencies. Moreover, our clients cannot resort to a standard bank. Over the years, we have been able to help more than 100,000 people overcome inconveniences, or secure a small loan for necessary purchases.

How do you explain the positive impact of this sector on Peruvian society?

To the general public, this credit is an opportunity to step forward. However, having so many entities it is possible that the client will start working with many of them, and eventually not fulfill their promises. For the client it provides an opportunity to do business. Every business must look forward, but in our business, we have to cover our backs as well. A bank will know when to decline a client, but if there are too many entities, eventually one will say yes.

What trends do you predict for the sector?

There will be a consolidation process of microcredit companies because there are a great variety of them. This is because actual and potential clients prefer such credits from businesses that have better support, provide security and inspire trust.