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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
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    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.

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    Bibliographic Info

    Article provided by Fucape Business School in its journal Brazilian Business Review.

    Volume (Year): 7 (2010)
    Issue (Month): 1 (January)
    Pages: 59-88

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    Handle: RePEc:bbz:fcpbbr:v:7:y:2010:i:1:p:59-88

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    Postal: Fucape Business School Brazilian Business Review Av. Fernando Ferrari, 1358, Boa Vista CEP 29075-505 Vitória-ES
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    Web page: http://www.bbronline.com.br/
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    Related research

    Keywords: Payroll loans; old age and survivors pensioners; biometric risk; actuarial mathematics; social security;

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    1. 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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