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Payroll loans by old age and survivors pensioners: an exploratory study using the principles of actuarial mathematics

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  • Fernando Henrique Câmara Gouveia
  • Luís Eduardo Afonso

Abstract

Credit activity has been growing strongly in Brazil since 2004. An important factor is personal loans to people receiving benefits from the Brazilian National Social Security Institute (INSS) with repayment by automatic deduction from their benefits. This paper investigates whether the rate of return obtained by financial institutions on these loans is the same as that on personal loans to salaried workers with automatic payroll deduction. The method to calculate these rates includes use of the actuarial mathematics’ principles, through the incorporation of a biometric risk factor associated with the borrower’s age. Employing a sample of 23 financial institutions, we compare the difference in the rates of return after considering the default costs, which are influenced by borrowers’ characteristics of two groups. The first group, composed of pensioners (both retirees and people receiving survivor pensions), is the treatment group. The control group is made up of São Paulo Municipal Government employees. The results provide significant evidence that, for the sample studied, the return obtained by financial institutions is greater on loans to social security beneficiaries.

Suggested Citation

  • Fernando Henrique Câmara Gouveia & Luís Eduardo Afonso, 2010. "Payroll loans by old age and survivors pensioners: an exploratory study using the principles of actuarial mathematics," Brazilian Business Review, Fucape Business School, vol. 7(1), pages 59-88, January.
    • Handle: RePEc:bbz:fcpbbr:v:7:y:2010:i:1:p:59-88
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    References listed on IDEAS

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    2. Ana Carla A. Costa & João M. P. de Mello, 2006. "Judicial Risk and Credit Market Performance: Micro Evidence from Brazil Payroll Loans," Working Papers Series 102, Central Bank of Brazil, Research Department.
    3. Ana Carla A. Costa & João M. P. De Mello, 2008. "Judicial Risk and Credit Market Performance: Micro Evidence from Brazilian Payroll Loans," NBER Chapters, in: Financial Markets Volatility and Performance in Emerging Markets, pages 155-184, National Bureau of Economic Research, Inc.
    4. Eduardo A. S. Rodrigues & Victorio Chu & Leonardo S. Alencar & Tony Takeda, 2006. "O Efeito da Consignação em Folha nas Taxas de Juros dos Empréstimos Pessoais," Working Papers Series 108, Central Bank of Brazil, Research Department.
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