Microfinance in Brazil

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Microfinance in Brazil

• Lauro Gonzalez
• lauro_at_fgvsp.br

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Summary

• Overview of the Brazilian Economy
• Regulatory Environment
• Institutional Forms and Models The Players
• Opportunity vs. Penetration
• Challenges to Development

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Overview of the Brazilian Economy

• 170 MM inhabitants
• Urban country
• GDP ? US 620 BB (US 1 Trillion PPP)
• 16,4 MM microenterprises (IBGE)

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Regulatory Environment

• Complex tax and labor laws
• MFIs can not offer savings and insurance
  products ( as many international counterparts)
• Capital requirements too demanding for limited
  scope of MFI activities given their non-deposit
  taking nature

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Institutional Forms and Models The Players

• Productive Microcredit Institutions
• ONGs (NGOs)
• OSCIPs
• Civil society organizations
• No regulation
• Many dont aim the break-even point
• SCMs
• Highly regulated by Central Bank (BCB)
• Approximately 50 in Brazil
• Affordable interest rates

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Institutional Forms and Models The Players

• Banking System
• Private banks
• State banks
• Many documents are required
• No access for the poorest
• Other
• Moneylenders
• Very high interest rates
• No regulation

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Penetration vs. Opportunity

• 16,4 MM microenterprises ¹
• 50 ² are potential microfinance products
  consumers ? 8,2 MM in Brazil
• Concentration on NorthEast Region
• 73 ³ are customers of Banco do Nordeste
  (CrediAmigo)

¹ Five or less employees ² CGAP Study in
Micorfinance Industries in Latin America Robert
Peck Christen ³ BNDES, 2002 Understanding
Microfinance in Brazilian Context
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While the penetration of microfinance in Brazil
is limited compared to other countries in the
region
Source BNDES, 2002, Understanding Microfinance
in the Brazilian Context.
the microfinance sector has grown significantly
over the past 10 years
Source Bank staff estimates based on data from
BNDES, BNB and individual institutions data
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Challenges to Development

• Regulatory Environment
• Macroeconomic Environment
• Beginning of 90s ? Hyperinflation
• High interest rates

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Challenges to Development

• Lack of Demonstration Effect
• Only CrediAmigo reached some level of
  demonstration effect
• Limited transparency of financial results
• No innovation, limited experimentation
• Lack of standardization
• Enable credit agents to sell the products

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Annex 1 Heliópolis Slum