An Estimation of the Magnitude and Spatial Distribution of Usury Lending

Abstract

In parallel with financial deepening, attention is increasingly being paid to the segment of the population that is not involved in formal financial intermediation. Some of these households typically have poor income situations, and therefore, due to their low creditworthiness, their demand for credit remains unmet. In our study, for the first time in the Hungarian academic literature, we attempt to estimate the magnitude of the spread of usury lending. Domestic responses to the Eurostat Survey on Income and Living Conditions were used to determine the order-of-magnitude of vulnerable, and thus potentially affected households. Based on our results, the proportion of Hungarian households that – due to their financial and housing conditions – are so vulnerable that they may be exposed, at least on an ad-hoc basis, to the risk of usury lending, can be estimated at between 3 and 13 per cent. In order to identify areas where usury lending is believed to be rife in the local community, we used as a basis the intersection of settlements lagging behind due to their economic-housing underdevelopment and districts with low (formal) credit penetration, based on the aggregate data from the Hungarian Central Statistical Office and the Central Bank of Hungary. The areas most affected by usury lending may be the country border settlements in Borsod- Abauj-Zemplen, Szabolcs-Szatmar-Bereg and Hajdu-Bihar counties. This result is also supported by the regional distribution of available official statistics on criminal usury.