Figure 1. A Cuban cuentapropista seeking to acquire a bank loan. Source: Photograph by the author.

 

Why do many people prefer not to use banks? A case study from Cuba suggests some answers.

I remember the optimistic vibe among foreign visitors, academics, and journalists in Havana during US President Barack Obama’s visit to the island in March 2016. Back then I was doing fieldwork among small-scale Cuban retail vendors at a marketplace that housed around 90 clothes and shoe vendors. While foreign newspapers were abuzz with discussions about the purported changes to the Cuban society, I was in Havana to explore what Raúl Castro had euphemistically called an “update” of the country’s socialist development model. The new policies legalized small-scale private businesses, vindicating a part of the population that Communist Party officials had previously stigmatized as “vermin”. Taxis, restaurants, cafés, bars, and street vendors were now permitted to hire employees and seek bank loans to establish or expand their businesses.

The shift marked the first time since 1968 that Cuban entrepreneurs could raise money from state banks. This expansion of banking services to the growing private sector was Cuba’s own version of “financial inclusion”, a development strategy pursued by governments across the world based on the idea that better access to banks will help solving problems of poverty (Elyachar, 2005; James, 2014; Schwittay, 2011). In the words of one enthusiastic newspaper report, Cuba’s “little capitalists” were now “ready to rumba”.

However, the years that followed showed that Cuba’s purported shift towards a market economy did not unfold as foreign observers or the government expected. One of the clearest signs of this was the fact that most Cubans did not take the official invitation to seek bank loans.

In the years following the reforms, only a fraction of private-sector members sought such loans. Even after the government made further efforts, in 2014, cutting more of the red tape that it thought was preventing people from seeking loans, a mere five percent of Cuba’s legalized private sector had received loans from state banks, the vast majority of these being farmers (León & Pajón, 2013, 2015). And so, despite the government’s high-profile efforts to encourage Cubans to enroll in the formal banking sector, people hardly used these institutions to raise capital. Why did Cubans rely on the formal banking system to such a small degree?

 

A global phenomenon

Cubans are not alone in their reluctance to embrace the modern banking system. In recent decades, state authorities, nongovernmental organizations and microfinance institutions across the world have sought to incentivize, or force, the poor to use banks. However, according to the World Bank, a significant portion of the global population, 1.4 billion adults, remains “unbanked” (World Bank, 2022).

In the Cuban case, national and international commentators suggested that half a century of Communist Party rule was to blame for people’s reluctance to use banks, as many Cubans lacked familiarity with such “capitalist” institutions. A correspondent from the BBC claimed that the island had no “culture of credit”, a concept that was allegedly “novel” on the island. Similarly, state officials argued that a key reason for the low turnout in banks was a “lack of habit and culture”.

Through my field research, I discovered that these explanations were not only misleading but also revealed a blind spot in popular thinking about what constitutes “banking” in the first place. While observing Cuban entrepreneurs in their pursuit of credit, I noticed that although they largely avoided traditional banks, they found other ways to access investment capital. Some would leverage housing property to free up funds, while others relied on loan sharks or business partners to secure credit. In a new academic article, I dive into these methods and other ways of accessing credit through social relations, considering them as examples of what I call “infrabanking” – that is, banking practices that deviate too far from conventional assumptions about banking to be recognized as part of the same phenomenon (Wig, 2024).

Figure 2. A notebook detailing payout dates for the members of a vaquita, a rotating savings and credit association, Havana, 2016. Names have been redacted. Source: Photograph by the author.

 

Kin credit

An illustrative example of infrabanking – and one of the most prevalent ways of raising business funds in Cuba – involves mobilizing family ties. Alejandro, a friend and collaborator during my research, received $1000 from his father to purchase a house with the intention of starting a tourist rental business. However, Alejandro understood that this financial assistance came with implicit obligations: By accepting his father’s help, he incurred a debt that entailed new expectations, including spending more time with his father, with whom he had a strained relationship over the years. Kin credit can be thorny in this way. While it is interest-free, recipients are expected to reciprocate in other ways.

 

Rotating credit

Another way in which people establish banking services through social ties is by establishing informal rotating savings and credit associations, known in Cuba as “the little cow” or “la vaquita”. Functioning akin to other rotating savings and credit clubs, known among researchers as ROSCAs, these associations operate as collaborative savings pools where members contribute funds and collectively lend money to one another at agreed intervals. Sometimes dubbed “the poor man’s bank”, these savings and credit clubs offer accessible yet reliable means of mobilizing capital.

Unlike the interest-free credit provided by Alejandro’s father, funds obtained through a ROSCA must always be repaid financially. However, like other informal credit sources, such as loan sharks or family assistance, ROSCAs require no paperwork or collateral. While accessing a bank loan could take weeks or even months of paperwork, a ROSCA provides immediate credit within familiar social circles, without the hassle of waiting in lines. Such accessibility is a particular relief in Cuba, a country where people are accustomed to enduring long queues even for basic goods.

Members of a vaquita will distribute pooled resources among recipients within minutes, addressing a demand for practical accessibility that traditional banks often fail to meet. Such close social ties among members not only enhance accessibility but also mitigate the risk of default. Although there are no legal mechanisms to penalize defaulters in a “little cow”, instances of default are rare, because of the mutual trust and surveillance among members within the association.

 

Banking beyond banks

Accessing credit through kin networks or informal rotating credit associations are just two examples of how people leverage social relations for banking-like operations. Despite their differences, these methods share common characteristics: Unlike formal banks, they offer credit within familiar settings, and provide payment schedules that align with fluctuating economic conditions.

Cubans leverage the breadth of social relations and skills at their disposal to mobilize investment capital, just not, it turns out, the institution that the country’s economic planners had thought would help them: the bank. Various types of infrabanking services show that the desirability of a financial service is determined by more than what banks can offer.

From a strictly profit perspective, it may seem logical, for instance, for an entrepreneur to store their savings in a bank account, where they can gain monetary interest on their investment, rather than participating in a rotating credit and savings association, which provides no such financial interest. However, the actual interests of ordinary Cubans surpass these considerations. Not only are bank loans and savings accounts relatively inaccessible, but Cubans also have several other methods for storing and obtaining capital.

What, then, does all this tell us about the banking preferences of the economically disadvantaged?

When selecting banking services, people’s considerations often extend beyond mere financial aspects. Unsurprisingly, Cubans seek to make a profit when mobilizing capital, but they also prioritize other factors, such as flexibility in out-payments, and practical accessibility. These preferences lead them to favor ways of mobilizing and saving capital that may escape the notice of bankers and government officials, but which, for much of the worlds’ population, are common-sense strategies in their struggle to get by.

 

Bibliography

Elyachar, Julia. 2005. Markets of Dispossession: NGOs, Economic Development, and the State in Cairo. Durham, NC: Duke University Press. https://doi.org/10.2307/j.ctv111jjq4.

James, Deborah. 2014. “‘Deeper into a Hole?’ Borrowing and Lending in South Africa.” Current Anthropology 55(S9): 17–29. https://doi.org/10.1086/676123

Schwittay, Anke F. 2011. “The Financial Inclusion Assemblage: Subjects, Technics, Rationalities.” Critique of Anthropology. 31(4): 381–401. https://doi.org/10.1177/0308275X11420117

Wig, Ståle. 2024. “Infrabanking. Mobilizing capital in communist Cuba”. Economic Anthropology. 11(1): 59–70.

World Bank. 2022. “COVID-19 Boosted the Adoption of Digital Financial Services.” July 21. https://www.worldbank.org/en/news/feature/2022/07/21/covid-19-boosted-the-adoption-of-digital-financial-services

About the Author: Ståle Wig