11

Scaling Up in Microfinance - Issues and Challenges

houses play a particularly important

2.

People below the poverty line.

role). Their presence has also helped to

3.

Micro-entrepreneurs eligible to be

increase the number of persons with

financed by regulated micro-credit

banking accounts, which, according to

financial institutions.

the most recent World Bank's report, is 60

million, representing almost 60 per cent

Furthermore, the following conditions

of Brazil's adult population.

should be met:

1.  The interest rate cap is 2 per cent

Simplified Bank Accounts

per month (although high in an

Simplified accounts have their origins in

international comparison, currently

an existing scheme developed to handle

it is considered quite low in Brazil).

social security payments. They are mostly

2.  M a x i m u m values of US$175.00,

offered by government-owned banks,

when the borrower is a holder of a

but private banks can also use them.

simplified bank account or below

poverty line, and US$350.00 when

Banks do not have to fully comply with

the  borrower  is  a  micro-

all

the

"know-your-customer"

entrepreneur.

requirements, but some specific

3.  Minimum term of 120 days.

restrictions were established, such as:

1.  It can only be owned by a natural

A financial institution is also permitted to

person.

purchase receivables related to micro-

2.  The customer is not provided with

credit or transfer to another institution,

cheque books, only cards.

buying specific bonds issued with this

3.  The customer cannot have another

purpose.

account in the same bank or in any

other financial institution.

In October 2004, outstanding loans

4.  Both the account balance and the

amounted to US$110 million.

sum of deposits every month must

Institutions Specialised in Micro-credit

be below US$350.00.

5.  It is not required to have an official

Another noteworthy measure taken was

identity card to open an account;

the creation of a specialised financial

a valid social security registered

institution -- the Society of Credit to

number is enough.

Micro-Entrepreneurs (SCM). However,

before describing SCM, it is important to

As of August 2004, there were more than

make some clarifications.

2.1 million such accounts.

Despite  the  creation  of  SCM,

Those two measures ­ banking

government-owned banks have been

correspondents and simplified bank

very active and creative in dealing with

accounts ­ were designed to provide

microfinance. In the northeast, Banco do

a c c e s s i b i l i t y to financial services.

Nordeste do Brasil (BNB) created

However, how does one move on and

'Crediamigo' (FriendlyCredit) quite a

enhance growth in micro-credit?

while ago, supported by the World Bank.

Again, the Banco Popular do Brasil, a

Compulsory Lending to Micro-credit

c o m m e r c i a l bank specialising in

According to the International Labour

microfinance, has been operating since

Organization's May 2001 report, there are

2004.

an estimated 14 million small productive

units in Brazil and they are potential

Credit cooperatives (known as credit

Since 2003, banks

micro-credit customers. A large majority

unions in some countries) also play an

are obliged to

of them are self-employed workers

important  role.  One  distinctive

direct at least 2

(amounting to about six million potential

advantage of credit cooperatives is

per cent of their

c u s t o m e r s exercising an effective

that they can mobilise resources of the

demand deposits

demand of about US$3.8 billion).

community to be used within it,

to micro-credit. At

Although high, this figure represents less

representing an important form of social

that time, it

than 1 per cent of the Brazilian GDP.

organisation. Also, as the cooperative is

represented

only allowed to make loans to their own

US$380 million

With this potential demand in mind, the

members, the problem of asymmetry of

Federal Government established a

information is less acute. A point to note

compulsory lending scheme. Since 2003,

is that cooperatives are concentrated

banks are obliged to direct at least 2 per

in the south and southeast of Brazil, with

cent of their demand deposits to micro-

some 2.1 million members, representing

credit. At that time, it represented US$380

1.2 per cent of the whole population,

million. Amongst the beneficiaries are:

and around 2 per cent of the credit

1.  Holders of simplified bank accounts.

transactions of the banking system.