Banks Boost Credit for Small Businesses

By Ben Tavener, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Interest rate cuts led by public banks in Brazil in 2012 have given a much-needed boost to small-scale businesses in terms of those looking to gain access to credit. Agência Brasil reports that, Banco do Brasil (BB) and Caixa Econômica Federal signed off on R$182.3 billion (US$ 88 billion) in loans in 2012, nearly 35 percent up on 2011.

Banco do Brasil HQ in Brasília, Brazil News

Banco do Brasil will be making R$1 billion of credit available to small and micro enterprises in the first quarter of 2013, photo by Ben Tavener.

Caixa provided R$60 billion of loans to businesses, 61 percent more than the year before, and BB made R$122.3 billion of funding available, up 25 percent on 2011.

Banco do Brasil’s Osmar Dias says that the main lines of credit applied for were used to discount bonds, working capital and development bank (BNDES) funding. “[These results] reflect the continued effort on the part of the bank to support growth among small and micro businesses.”

Banco do Brasil has also announced that it will make R$1 billion (US$488 million) available to small and micro businesses, known jointly as MPEs (Micro e Pequena Empresa). Loans are offered on a monthly interest rate from 0.96 percent and normally should be repaid within two years, with three months to make the first installment.

With the importance of small businesses for employment and distribution of wealth, the Brazilian government has put in place a number of incentives aimed at keeping MPEs running. The purpose of this statute was to make life easier for MPEs, through greater access to technology, exports opportunities, public contract offers and, crucially, a simplified single tax code, less bureaucracy and access to credit.

Serviço Brasileiro de Apoio às Micro e Pequenas Empresas (Sebrae), photo by Elza Fiúza/ABr.

According to SEBRAE (Brazilian Support Service for Small and Micro Enterprises), 99 percent of Brazil’s seven million companies qualify as “small” or “micro” enterprises, photo by Elza Fiúza/ABr.

According to the Estatuto da Micro e Pequena Empresa (Statute for MPEs), a “micro” enterprise is one with an annual turnover of less than the equivalent of R$360,000 (US$175,000), and a “small” enterprise is one with a yearly income of between R$360,000 and R$3.6 million (US$1.75 million).

For foreigners starting small businesses here, Hélio Coelho, president of Judicial Care Business Group, tells The Rio Times that despite the cut in interest rates for MPEs in Brazil, most foreign businesses seek funding elsewhere, as Brazilian rates are still not overly competitive when compared to other some other countries.

Also, “To obtain [the loans] the Federal Government requires that the company already has more than a year with open financial transactions consistent with the value you want to borrow.” Mr. Coelho explains.

Although there has been much attention drawn to what economists label the “Brazil Cost” – factors such as bureaucracy and poor infrastructure that discourage foreign companies from investing in Brazil – there is still much optimism. A significant rise in the number of foreign immigrants coming into Brazil is seen as an indication of the country’s varied opportunities.

Analysts point out that poor economic performance in other parts of the world, particularly in Europe, and with forecasts of better growth in the Brazilian economy for 2013, the prospects of doing business in Brazil appears to remain better than in many other countries.

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