9

Scaling Up in Microfinance - Issues and Challenges

Financial System Regulation

and Financial Services to Low

Income Populations in Brazil

One of the main measures taken by the Brazilian Federal Government and the

Central Bank of Brazil has been to facilitate the regulatory environment in order

to assure the provision of financial services to low-income populations. Actually,

it is a long- term task in countries such as Brazil and, since the late 1990s, the

Brazilian Federal Government has been working towards increasing access to

financial services. Furthermore the government, under Lula da Silva, is committed

to enhancing the quality of life of the poorest and in reducing inequalities.

M

y primary objective in this article is

At this point, it is important to note that

to describe the main mechanisms

there is no consolidated legislation nor

of regulation and supervision of

any specialised agencies exclusively

microfinance institutions, the challenges

dedicated to the regulation and

supervision of microfinance firms. Again,

in regulating such institutions, and how

MFIs that are not considered financial

the issues of not-for-profit organisations

institutions, such as non-governmental

are being addressed, from the

organisations (NGOs) and ones that use

perspective of the Central Bank of Brazil.

public funds (some are state-owned in

First of all, I will present a brief description

Brazil, and I will briefly comment in a

of the Brazilian regulatory environment,

moment) are not regulated.

starting with a summary of our major

regulatory characteristics and some

With this in mind, it is important to

basic, but very important for the

elaborate on some geographical and

purposes of understanding the subject,

economic data.

geographical and economic data.

Geographical and Economic

Data

After that, I will describe some of the

These data are important to better

regulatory measures taken to enhance

understand the dimensions we have to

bancarisation, the types of financial

deal with in Brazil to put in place the

institutions and other civil organisations

right incentives in order to provide

devoted to microfinance, and the main

challenges in regulating them.

access to financial services to a larger

portion of the population.

I hope our experience will be useful in

stepping up initiatives to enhance the

With a radius of 8.5 km  2, and 180 million

regulatory environment related to

inhabitants, the estimated GDP in 2004

financial services accessibility to the

was US$578 billion. The population is

poor.

spread across 5,560 municipalities and,

of interest to the discussion, is unevenly

Financial System Regulation and

distributed and mainly concentrated in

Supervision Framework in Brazil

the  south  and  the  southeast.

Furthermore, almost 50 per cent of

The National Monetary Council,

income is the hands of the 10-per cent

comprising the Finance Minister, the

rich. Due to a combination of these two

Planning and Budgeting Minister, and

the Governor of the Central Bank, is

factors, financial institutions tend to

Microfinance

responsible for regulating financial

concentrate on larger cities and the

firms (MFIs) are

institutions' activities and operations in

south and the southeast.

subject to the

the country. Complementary regulation

Central Bank's

and banking supervision are the Central

With regard to the credit supply, we

authorisation and

Bank's responsibility. Microfinance firms

realise that there is a lot of room for

must comply with

(MFIs) are subject to the Central Bank's

improvement. If we take a look at the

specific

data about credit activities around the

authorisation and must comply with

regulation

world, considered as a percentage of

specific regulation.