Microcredit Pulls Families Out Of Poverty
A loan of BRL100 (USD 45) here, another BRL1,000 (USD 450) there. Little by little, microcredit for micro-entrepreneurs in 2013 reached a record: BRL 4.8 billion (USD 2.1 billion). From late 2012 to last year, funding for small producers rose no less than 68%, while consumer credit, in a downward trend since 2010, fell more than 39% last year, a “historic low”.
The total amount in the microcredit portfolio rose 42% in 2013. The total of the year was close to the total of directed credit in the country in the same month. Microcredit might be in fact, “micro”, but it’s “macro” by its social function.
“The labour market doesn’t offer all the jobs needed”, says Almir da Costa Pereira, president of the Brazilian Association of Operators of Microcredit and Microfinance Institutions (ABCRED). “Therefore, a typical client for productive microcredit is one that can’t find suitable employment and looks for an alternative to open their own business and become a micro-entrepreneur”.
Urban micro-entrepreneurs run, for example, small shops, seamstress ateliers, grocery stores and beauty salons in the suburbs. In rural Brazil, it is the agri-producer who receives funding, and has usually minimal conditions to get out of the low-income classes D and E.
Beatriz Rocha, 37, from the federal state of Paraná, is among those Brazilians. Mother of three children between 2 and 11 years old, she lives in a wooden shack of 20 square meters in the town of St. Anthony of the Southwest at the border of Paraná and Argentina. With a loan of BRL 3,000 (USD 1,300) from the Fomento Paraná bank, she could buy a freezer and a cow – baptised Ariana. The addition to the other two cows that she had already bought with the help of the Bolsa Familia, a social program of the federal government, Beatriz could start a small dairy production, and sell to a cooperative in the region.
For Antonio Mendonça, CEO of Banco do Povo Paulista (BPP – Peoples Bank of São Paulo), connected to the Government of the State of São Paulo, microcredit is part of the “social revolution” observed in Brazil in recent years. Although it is not yet possible to calculate the size of the impact of access to microcredit on the lives of more than 40 million Brazilians consumers since the last decade, he has no doubt of the importance of the model. “Microcredit is responsible for changing the lives of many families”, he says.
The BBP conducted interviews with micro-entrepreneurs to evaluate its services. According to the survey, 98.9% of the respondents said their business improved after taking microloans, 79.2% saw an increased turnover, and other 95.8% said that their lives improved after funding.
The BBP provides microcredit lines between BRL 200 (USD 85) and BRL 15,000 (USD 6,500) and 10 mini-courses geared to microenterprises. It states that today it serves 74,000 families in 514 municipalities and has a balance of BRL 290 million (USD 125 million) in portfolio, with funds from the State and municipalities. “The partnerships are made with municipalities of various political parties, allies or not”, says Mendonça.
In 2007, the Central Bank initiated the microcredit largely focused on consumption, with 75% of the total. And although the economic growth of the country has been spurred by demand from the last decade, from 2011 the scenario of microfinance has changed dramatically. Today, 89 % of the loans are for micro-entrepreneurs.
Microcredit to the micro-entrepreneur is basically offered by Organizações da Sociedade Civil de Interesse Público (Oscips – Civil Society Organizations of Public Interest), federal government programs (such as Grow) and regional governments programs (such as the Paraná Zero Interest and Microcredit Program Gaúcho) or directly from public and private banks.
The loans are low value, from BRL 100 (USD 45). Interest revolves around 5% a year, well below the average bank interest rate of 29% last year. In the Northeast, where the Banco do Nordeste consolidated the Crediamigo program over the last 15 years, for example, the average loan in 2013 was BRL 1,200 (USD 520).
Mainly through the work of Oscips microcredit loans include participation of people normally excluded from the common financial system. It’s people have no guarantees of income or assets. The obligation to pay is based on trust or actions of solidarity (groups known to guarantee payment of each other).
Contrary to common belief, these loans to anyone with little or no money have a default rate equal to or less than the financial system in general. Under micro-consumers and micro-entrepreneurs, the microfinance delinquency was 6.94%, in line with the rate for the entire Brazilian economy, which was 6.7% in 2013, according to the Central Bank.
“In the productive microcredit program, we have professional loan officers accompanying the micro-enterprises to offer a fitting credit”, says Pereira of the ABCRED. “Consequently, whoever receives funding, invests in something that generates a return”. Delinquency on loans made via Oscips microcredit is around 3%, calculates the ABCRED.
The delinquency rate (more than 90 days too late) of microfinance to a micro-entrepreneur in December was 5.34%. For the consumer, however, the record is less favourable: 20.77% delinquency rate. In other words, productive orientated loans generate a greater commitment to payments to be made than the ones for mere consumption loans.