The competitive edge of credit unions in Costa Rica: From financial repression to the risks of a new financial environment

This article argues that financial repression played a key role in the emergence of credit unions (CUs) in Costa Rica, along with other institutional factors. Credit unions took advantage of the opportunity to serve borrowers whose requests had been refused by banks. Given the sweeping reforms of the Costa Rican financial system aimed at reducing the scope of financial repression, this article poses the question of how those reforms impacted the competitiveness of CUs. Previous literature suggests that financial reform may lead to concentration in the financial sector, and not to the promotion of a more competitive environment. This article presents data showing that CUs in Costa Rica exhibited an enhanced ability to gain market share and also provides an explanation for the observed trend. RESUME L’article soutient que la repression financiere avec d’autres facteurs institutionnels a joue un role cle dans l’emergence des cooperatives financieres (CF) au Costa Rica. Les CF ont profite de l’occasion pour servir les emprunteurs dont les demandes avaient ete refusees par les banques. Compte tenu des reformes radicales du systeme financier costaricien, visant a reduire l’etendue de la repression financiere, l’article pose la question de l’incidence de ces reformes sur la competitivite des CF. La litterature precedente suggere que la reforme financiere peut conduire a une concentration du secteur financier et non a la promotion d’un environnement plus competitif. Notre article demontre que les CF du Costa Rica presentent une capacite a accroitre leurs parts de marche. Nous fournissons une explication de la tendance observee.