Ponzi Schemes and the Financial Sector: DMG and DRFE in Colombia

36 Pages Posted: 26 May 2017

See all articles by Marc Hofstetter

Marc Hofstetter

Universidad de los Andes

Daniel Mejia

Universidad de los Andes, Colombia - Department of Economics

José Rosas

Inter-American Development Bank (IDB)

Miguel Urrutia

Universidad de los Andes, Colombia - Department of Economics

Date Written: May 16, 2017

Abstract

By the time the Colombian government closed DMG and DRFE, two Ponzi schemes that were operating in Colombia until 2008, over half a million customers had deposited funds corresponding to 1.2% of Colombia’s annual GDP. We show that the individuals who invested in DMG and DRFE obtained close to 40% more loans in the formal financial sector prior to the government closing these firms, compared to similar individuals who did not invest in these pyramids. Moreover, deposits in the formal financial sector fell in those municipalities affected by these two pyramids: a one-standard deviation increase in the municipal presence of the pyramid schemes reduced municipal saving deposits by 2.9% and Certificate Deposits by close to 10%. After the firms were shut down, the proportion of nonperforming loans of investors rose 35% above non-investors’ loans; two years later, investors’ deposits had not yet fully recovered.

Keywords: Ponzi Schemes; Pyramids; Colombia; Financial Sector; Savings and Loans; Loan Ratings

JEL Classification: E21, E44, G11

Suggested Citation

Hofstetter, Marc and Mejia, Daniel and Rosas, José and Urrutia, Miguel, Ponzi Schemes and the Financial Sector: DMG and DRFE in Colombia (May 16, 2017). Documento CEDE No. 2017-35, Available at SSRN: https://ssrn.com/abstract=2974111 or http://dx.doi.org/10.2139/ssrn.2974111

Marc Hofstetter (Contact Author)

Universidad de los Andes ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

Daniel Mejia

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1 No. 18 A - 10
Bogotá, AA4976
Colombia
57(1)3394949 ext 3737 (Phone)
57(1)3324492 (Fax)

HOME PAGE: http://economia.uniandes.edu.co/share/scripts/home/home.php

José Rosas

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Miguel Urrutia

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

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