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FINANCIAL SECTOR ASSESSMENT PROGRAM UPDATE
BRAZIL
FINANCIAL INCLUSION IN BRAZIL: BUILDING ON SUCCESS
TECHNICAL NOTE MAY 2013
INTERNATIONAL MONETARY FUND MONETARY AND CAPITAL MARKETS DEPARTMENT
THE WORLD BANK FINANCIAL AND PRIVATE SECTOR
DEVELOPMENT VICE PRESIDENCY
LATIN AMERICA & THE CARIBBEAN REGION
VICE PRESIDENCY
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Glossary
ATM Automated Teller Machine BB Banco do Brasil
BCB Banco Central do Brasil BM&FBOVESPA Stock Market Exchange BNB Banco Nordeste do Brasil BNDES Banco Nacional de Desenvolvimento
CEF Caixa Economica Federal CONEF Financial Education National Committee
COREMEC Supervisory and Regulatory Committee of Financial Systems,
Capital Markets, Private Insurance and Social Welfare
CPL Cadastro Positivo Law
DB Doing Business
DHS Demographic and Health Surveys
ENEF National Strategy for Financial Education FEBRABAN Brazilian Banking Federation FI Financial Institution FINDEX Financial Inclusion Database
FSAP Financial Sector Assessment Program
LITS Life in Transition Survey LSMS Living Standard Measurement Surveys
MFI Microfinance Institution MSMEs Micro, Small, and Medium Enterprises
NGO Non-governmental Organization
POS Point of Sale PRONAF Program for Strengthening Family Farming
SCR Credit Information System
SCPC Serviço de Proteção de Credito
SME Small and Medium Enterprises
3
Contents
Glossary ............................................................................................................................................... 2 Executive Summary ............................................................................................................................. 4
I. The Status of Financial Inclusion in Brazil ................................................................................ 10 A. Financial Access Delivery Channels ...................................................................................... 10 B. Users and Products .................................................................................................................. 13 C. Credit Reporting and Consumer Protection ............................................................................ 18 D. Financial Products Suppliers................................................................................................... 20
E. Laws, Regulations and Government Programs ....................................................................... 24 II. Selected Issues in Financial Inclusion ........................................................................................ 27
A. The Payroll-Guaranteed Loan Program--Crédito Consignado ............................................... 27 B. Credit Reporting–Moving to a Positive Credit Registry “Cadastro Positivo” ........................ 29 C. Mobile Payments, Credit Cards and the Rule of “Sobre Preço”............................................. 33
D. Consumer Protection and Financial Capability / Education ................................................... 36
APPENDIX ........................................................................................................................................ 43
Tables:
Table 1. The main recommendations contained in this TN ................................................................. 8
Table 2. General Access Indicators in Leading Emerging Economies .............................................. 13 Table 3. Basic Statistics on Brazil’s Cooperative System, May 2011 ............................................... 23 Table 4. Regulations on Financial Inclusion Issues ........................................................................... 25
Table 5. Payroll Guaranteed Loan Program ...................................................................................... 27
Graphs: Graph 1. Accounts at a Formal Financial Institution in Latin America and G-20 ............................ 12
Graph 2. Accounts at a Formal Financial Institution by Gender ....................................................... 15 Graph 3. Credit Card Access: General vs. Bottom 40% .................................................................... 16 Graph 4. Savings: Total Savings and Savings at a Financial Institution ........................................... 17
Graph 5. Doing Business Index Score ............................................................................................... 18 Graph 6. Consumer Protection-Dispute Resolution and Recourse .................................................... 19
Graph 7. Consumer Protection--Requirements on Periodic Disclosure ............................................ 20 Graph 8. Consumer Protection--Monitoring and Enforcement ......................................................... 20 Graph 9. Share of Cooperatives in the National Financial System .................................................... 22 Graph 10. Interest Rates on Loans by Type, 2004-2011 ................................................................... 28 Graph 11. Average Financial Proficiency Score ............................................................................... 40
Graph 12. Average Financial Autonomy Index ................................................................................ 41 Graph 13. Average Percentage of Income Saved .............................................................................. 41
Figures: Figure 1. Types of Financial Providers Involved in Financial Inclusion ........................................... 21
4
Executive Summary 1. Over the past decade Brazil has made significant strides toward financial inclusion. A
full 100% of Brazilian municipalities are served by some type of facility provided by a formal
financial institution delivering a basic set of financial services1. Factors contributing to this success
include the expansion of a national correspondent banking network, growth in microfinance and
cooperatives and increasing incomes at the base of the economic pyramid due in part to well-
targeted government transfer programs such as Bolsa Familia. As a result of these policies, Brazil
has one of the highest levels of penetration of bank accounts among emerging economies – 56% of
adults in Brazil have an account according to recent FINDEX data. This compares very favorably to
other countries in the region as well as to other large, advanced developing countries globally such
as some of the other BRICs. There is still room for improvement however, to reach the levels of
developed countries where coverage levels above 90% are common.2
2. The development of a far reaching correspondent banking network is one of the key
factors behind Brazil’s success story in financial inclusion. Between 2005 and 2011, the number
of correspondents approximately doubled to more than 160,000. The Central Bank encouraged
financial institutions to reach out to more distant consumers and to communities where they had not
previously been active, including lower income areas, through partnerships with a variety of retail
establishments including some with public ties such as the post office network and lottery agencies.
Regulators have gradually reduced restrictions on correspondent banking, such as individual
approval processes, in response to early successes with this program. The legal framework also
facilitated healthy expansion by putting the onus on regulated institutions to train and monitor their
correspondents.
3. A variety of government programs have also played a pivotal role in financial inclusion
efforts. In terms of Bolsa Familia, not only have incomes been raised--thus indirectly encouraging
access to finance--but the program itself has also been used as an instrument of financial inclusion.
All Bolsa Familia recipients receive their benefits through electronic cards from Caixa and more
than 2 million of the 13 million beneficiaries have opened a Caixa bank account. In terms of
microfinance, the vast majority (about 75%) of customers are served by the Crediamigo program at
Banco Nordeste do Brasil (BNB) which today has nearly 1 million active loan accounts. In terms of
rural credit, PRONAF, distributed in part by the Agroamigo program at BNB, is responsible for
providing access to finance for family farmers / producers – about R$ 12 billion in agricultural
credit was provided in both 2010 and 2011. Other government programs also have promoted access
to credit including notably the crédito consignado programs provided through government funded
pensions or through salaries of government employees.
4. While much has been accomplished, the financial inclusion agenda is far from
complete. Handling payments, including those related to paying utility bills and the monthly
government benefit, remains the primary service performed by many correspondent banks. The
range of financial services that people need beyond payments– including savings, credit and
insurance--is still not readily available for many low income consumers. Progress has also been
unbalanced along other dimensions. Credit products have expanded more rapidly and become more
1 Data on access points are available on the Brazilian Central Bank website: http://www.bcb.gov.br/?MICROFIN 2 See map of bank account coverage by country in Appendix, Figure A1.
5
widespread than savings products, creating a potential for unhealthy levels of indebtedness. The
expansion of access has also been tilted toward higher income regions–the South and Southeast–
especially in terms of numbers of correspondents and the growth of financial cooperatives.
Microinsurance, while growing, is still relatively underdeveloped and focused on a few limited
markets such as funeral insurance.
5. Increased attention should be given to developing savings habits to further strengthen
financial inclusion while buttressing financial stability, According to 2011 Findex data, only
one-fifth of adults in Brazil reported saving any money in the previous year, and only one-tenth
saved money in a formal financial institution. As a result, 90% of savings in Brazil are generated by
the corporate sector. This situation is striking, especially given Brazil’s income level. Among upper
middle income countries more than twice as many adults usually have formal savings. Brazil’s
comparatively generous pension system is likely one factor behind low levels of personal savings,
together with widespread access to retail consumption credit and possibly still some behaviors
linked with price instability of years past. On the supply side, traditional disincentives for
promoting small savings accounts (relatively high costs) as well as high reserve requirements on
deposit accounts and access to alternative sources of financing have limited expansion of savings
products. Addressing the savings issue is thus at the heart of a number of fundamental financial
sector and fiscal reforms.
6. Rapid expansion of credit over the past four years has created the potential for
unhealthy levels of debt, especially in lower income households. Aggressive promotion of low
cost loans through Crediamigo (now even more affordable due to the Crescer program), PRONAF,
and crédito consignado programs have increased access to credit and, correspondingly, the levels of
debt. In the private sector, many low income consumers in economic class “C” have also gained
access to ubiquitous store-credits which largely finance consumption, and for those with slightly
higher incomes, to auto loans. These factors have raised concerns that some low income consumers
are getting “in over their heads” in debt and are vulnerable to a negative financial shock to the
household (e.g., loss of employment, health problem, death in the family) or to the broader
economy (e.g., recession, interest rate spike). Fully analyzing the extent of over-indebtedness is not
readily possible, as comprehensive data on the level of debt among low income consumers in Brazil
is not available. However, the rapid growth of credit programs, especially in the past 2-4 years, and
concerns among many stakeholders in the financial inclusion arena would suggest that increased
attention be given to this potential problem.
7. The regulation of the recently enacted positive credit histories law has the potential to
greatly improve market intelligence, and competition and efficiency in financial markets.
Properly implemented, the so-called Cadastro Positivo Law (CPL) should improve risk analysis and
increase competition for good borrowers, putting downward pressure on interest rates. However, the
CPL requires consumers to “opt in” to the system by authorizing their participation in writing. This
will make the positive data registry harder and more costly to construct and there will be a greater
lag in creating a comprehensive positive credit history than if the “opt out” approach had been
adopted.3 In this scenario there is a risk that the benefits of the CPL will not materialize quickly and
3 Through an “opt out” approach, consumers would be included in the database unless they took the initiative to have
their data removed (i.e. through an online process, writing a letter, signing a form at their bank or some other
mechanisms which should be fairly easy for consumers to access).
6
public perceptions will be that it has had no effect further reducing willingness to participate. How
the law is regulated and the development of a public information campaign supporting the reform
will significantly affect its impact. The addition of positive credit histories also increases the need
for an enhanced supervisory and regulatory framework for credit bureaus to strengthen public
confidence in the system and thus participation.
8. Clarifying the roles the Central Bank’s credit registry SCR could play is highly
relevant to the CPL discussions. The SCR has a very granular and extensive coverage of banking
loans with both positive and negative information, but only regulated financial institutions have
access to these data. Further, the Central Bank is not in a position to develop commercial credit
scoring models based on the SCR–one of the key offshoots/tools that such databases typically
provide to a financial market. In any case, there is a need to clearly define the SCR’s roles in the
financial system including its contribution to the supervision of regulated institutions, its direct use
for credit risk analysis by lenders, and its potential for strengthening the credit reporting industry
while fostering competition and transparency in the financial system. Other countries in the region,
for example, share some data from the public registry with private credit bureaus who meet certain
criteria such as licensing or other regulatory requirements.4
9. There has been progress in the regulation of the payment card processing industry
recently but further reforms are needed. A 2010 government report identified multiple issues on
competition in this industry.5 Some of the recommendations from this report have been
implemented, but the industry remains highly concentrated with two acquirers – Cielo and Redecard
– occupying more than 80% of the market. Market dynamics have resulted in high merchant fees as
well as very high interest rates for those consumers who carry balances. A potential area for reform,
which could put some downward pressure on card costs and reduce consumers’ incentives to use
cards, relates to restrictions on price differentiation by type of payment instrument (the so-called no-
surcharge-rule). However, the Department for Protection and Defense of Consumers understands
that allowing such price-differentiation would not be in line with the Consumer Defense Code.
Since lower income consumers are less likely to use payment cards, they are in effect cross
subsidizing consumers who are using credit cards, including high income consumers that receive
benefits through loyalty programs. This rule also reduces the ability of merchants to negotiate the
fees charged, further enhancing the market power of the large card processors. While there are
many good reasons to promote electronic payment systems on costs, efficiency, informality
reduction, and tax evasion grounds these systems should be competitive – and if they are not may
require further policy action. The development of mobile payment solutions which do not need to
be processed through the card companies and legal clarity on the use of post-dated checks would
also help stimulate competition and reduce costs in the payment and broader financial systems.
10. Virtually every financial inclusion stakeholder identified financial education as a
priority to help address issues of over-indebtedness, lack of savings, financial products selection,
and insurance products consumption. The first major financial education project undertaken by
CONEF (the national partnership for financial education) has focused on developing financial
4 Examples include Argentina and Ecuador. 5 “Report on the Brazilian Payment Card Industry 2010” by the Central Bank of Brazil, the Secretariat of Economic Law of the Ministry of Justice (SDE), and the Secretariat for Economic Monitoring of the Ministry of Finance (SEAE). http://www.bcb.gov.br/Pom/Spb/Ing/Payment_Cards_Report.pdf
7
capability in high schools, and has just completed its pilot phase. The rigorous impact evaluation of
the program recently completed found statistically significant increases in financial autonomy,
financial proficiency and savings behavior. Efforts are in the early stages to develop adult financial
education but these are not yet being implemented (likely roll out in late 2012 or 2013). Mapping
existing financial education priorities and gaps and linking these findings to the upcoming adult
education initiatives should be given priority.
11. Strengthening financial consumer protection would support sustainable access to
finance. There are a relatively high number of complaints about financial services providers
registered with the Ministry of Justice. Unlike the case of financial education, which was
championed by the committee of financial market regulators (COREMEC), responsibility for
consumer protection is mainly with a unit at the Ministry of Justice which has very limited
resources and no staff dedicated solely to financial market issues. To be sure, there have been some
recent efforts to strengthen consumer protection—e.g., this unit became a Secretary level unit in
May 2012—but more is needed, especially when it comes to new financial consumers.
12. Going forward, identifying ways to encourage innovation and competition in financial
markets – such as through mobile banking and mobile payment - will help expand inclusion
and contribute to improved product and service quality. In the specific case of mobile banking,
providing regulatory flexibility/space for more experimentation or pilots would be a useful way to
promote this channel which could be especially important for access in less populated and less well
served rural communities. Identifying ways to use public policies to create more competition in
financial products and services rather than further concentrating activities with the major state-
owned financial institutions would also help promote more efficient targeting of government funds.
13. Modest investments in more systematic, rigorous, and independent impact evaluations
of financial inclusion government programs and policies would pay large dividends in terms
of efficiency and effectiveness of the use of public funds. Some programs and policies have been
reviewed for impact, such as the aforementioned school-based financial education program.
However, external sources are typically needed to fund such evaluations. Creating even a small
fund for impact evaluation, perhaps supported by external donors who are active in this space, could
provide valuable information for better targeting limited public resources.
14. This Technical Note (TN) does not include an analysis of the causes underlying Brazil’s
continued high credit cost but many of the issues discussed here may be contributing factors. These include the lack of savings and related dependence on credit which may reduce price
elasticity in credit markets; information asymmetries which add to the cost of credit evaluation and
increase risk for lenders; and competition issues (as with mobile payments and the so-called no-
surcharge-rule on payment methods). The Aide Memoire for the FSAP Mission provides further
discussion of these important issues.
8
Table 1--Technical Note: Main Recommendations
Summary of Issues and Recommendations Issue Observations and Recommendations
Credit Incentives Numerous government programs provide highly subsidized credit for low income
consumers (microfinance, agricultural credit, housing credit, etc.) or facilitate credit
access (so called “payroll loans” backed by public sector wages or pensions). In the
case of subsidized programs, sustainability is an issue as well as market distortions
which discourage new entrants or competition. For the payroll loan program, the very
limited default risk faced by lenders creates incentives issues including the possibility
for overselling these loans to consumers who may not need them or fully understand
the cost. As a first step, further rigorous impact evaluation of these programs and their
costs and benefits would be useful in determining next steps including more narrowly
targeting subsidies, identifying other needed policies or programs and if necessary
regulatory reforms.
Savings Promotion Regulatory barriers and a generous pension system, together with increased access to
unsecured credit for consumption purchases, create a disincentive for mobilizing
savings on both the supply and demand sides. Addressing both macro and micro level
factors will be necessary to substantially increase savings in Brazil. In terms of
financial inclusion policies, actions could include strengthening basic accounts which
offer savings instruments (and determining why they have or have not worked to
promote savings in the past), identifying ways to promote and encourage savings (such
as through lotteries which are already popular), increasing financial education efforts
and enhancing disclosure on credit (so comparisons with the cost of credit vs. saving
for consumption are clearer).
Cadastro Positivo
Law (CPL)
The new CPL would promote greater transparency and competition in financial
markets and contribute to efforts to reduce the cost of credit. However, the way this law
is implemented will affect its impact. Since it requires consumers to “opt in” or
authorize their participation in writing, the public outreach campaign will be very
important as well as the specific requirements on how permission is collected and how
it relates to existing credit bureaus. Establishing a clear legal and regulatory
framework, including effective supervision/enforcement for credit reporting will be
critical for increasing consumer confidence and participation.
Mobile Payments Efforts are already underway involving the Central Bank and the Ministry of
Communications to develop regulations for mobile payments. This should help create
the clarity needed as well as the regulatory flexibility/space for more experimentation
and investments in this channel which could be especially important for access in less
populated and less well served rural communities. A related issue is the merchants’ so-
called no-surcharge-rule that prevents them from charging different prices for different
payment methods. This should be reviewed as it likely is resulting in increased market
power for leading card processors vis-à-vis merchants (especially small ones) and
transfers from low-income cash using consumers toward higher-income card using
9
consumers; market power of card processors may also be affecting the development of
alternative channels such as mobile payments.
Consumer
Protection and
Financial
Education
Consumer protection and financial education are gaining increasing attention as part of
Brazil’s financial inclusion strategy. The government has been active in developing a
thoughtful approach to financial education through a school-based financial education
program which is a global model of good practice in terms of how it was designed,
piloted and evaluated. Future work is to extend financial education to adult populations.
On the financial consumer protection front, there remains ambiguity on roles and
responsibilities. The Ministry of Justice has jurisdiction on this topic but limited
capacity or specialized knowledge. Thus far the approach has been to create
committees between Justice and the Central Bank to overcome these limitations. An
independent evaluation of the framework for financial consumer protection in Brazil
could help identify key issues and gaps and help further strengthen these efforts.
10
I. The Status of Financial Inclusion in Brazil6
15. This section compares progress on financial inclusion in Brazil with regional
comparators as well as with some nations outside Latin America with similar or higher levels
of income. Data are taken from a variety of sources7 including:
o The Global Financial Inclusion (Findex) Database which provides the first
internationally comparable survey-based demand side data on access and use of
financial products, services and infrastructure;
o Financial Access 2010 which has supply side data including detailed information on
financial consumer protection worldwide; and
o Doing Business for data related to credit information.
16. Brazil has made great strides in financial inclusion over the past decade and now leads
the region in terms of percent of population with an account in a formal financial institution
(Graph 1 and Table 2). In Brazil, 56% of the population has an account with a formal financial
institution, compared to a regional average in Latin America of only 39%. This figure is above other
middle income countries in the region which have per capita incomes significantly higher than
Brazil’s – by about 50% or more – such as Argentina (33%), Chile (42%) and Uruguay (24%).
When compared with other G-20 countries, however, Brazil still trails developed country
experiences which are typically in excess of 90% coverage (and in several cases nearly universal at
100%). Brazil is also behind China which reports 64% of the adult population is “banked”.
A. Financial Access Delivery Channels
17. Gaining access to bank accounts in Brazil has been greatly facilitated by the
correspondent banking network which numbers approximately 152,000 locations throughout
the country.8 This network complements the much smaller number of traditional bank branches
(approximately 20,000) reducing the costs and increasing the convenience of performing basic bank
transactions including opening accounts, making deposits and withdrawals, and applying for small
loans. Financial inclusion statistics on bank branches in Brazil, estimated at 12.7 per 100,000 adults,
do not capture this vast correspondent network which is unique in its size and scope.
18. In terms of access to Automated Teller Machines (ATMs) Brazil is also far ahead of
other countries in Latin America, and globally, with 121 ATMs per 100,000 adults. Comparator countries in the region – including several with higher per capita incomes - have only a
fraction as many ATMs per 100,000 adults including Argentina (42), Chile (63) and Uruguay (30).
The ATM network in Brazil is unusual in its size even by high income country standards and
exceeds those in Germany (117), France (110), Italy (99) and the U.K. (65). Only a few countries
have larger networks including the U.S. (174), Canada (220) and Korea (250). One possible
explanation for the Brazilian numbers is the fact that in the country most ATM networks are not
shared and so there is a lack of interoperability. A low level of interoperability implies a lower
average number of transactions per terminal, overlapping of ATMs, (which reduces the capillarity
of the network) and higher costs of development and maintenance.
6 This Technical Note (TN) was prepared under the March 2011 FSAP Update for Brazil by Margaret Miller (World Bank).
7 Additional country specific data on market/financial intermediary structure are available in the FSAP Aide Memoire, Chapter 2 and
in the Appendixes.
8 Data as of June 2010, from Central Bank of Brazil website: http://www.bcb.gov.br/?MICROFIN.
11
19. Brazil also stands head and shoulders above other countries in Latin America in terms
of the spread of Point of Sale (POS) technology, with 1,471 terminals per 100,000 adults.
Penetration is much higher than in other countries in the region--Chile (450), Panama (427) or
Uruguay (275). The spread of POS technology in Brazil has not reached high income country
levels, however, which often exceed 2,000 per 100,000 adults (examples include Italy, France, the
U.K., U.S. and Canada) and in a few instances even 3,000+ per 100,000 adults (Australia, Turkey).
Similarly to the ATM network, POSs do not have full interoperability which results in a high level
for the merchant discount rate compared to other countries.
20. Mobile payments via cell phones in Brazil have just barely begun to develop and are
reportedly used by only about 1% of the population. The figure for online electronic payments is
significantly higher with 6% of low income consumers using this method.9 Checks are another
common form of payment among higher income Brazilians but are less frequently available to low
income consumers – according to FINDEX data only 2% of low income Brazilians use this payment
channel.
21. While this report focuses primarily on consumer or personal finance, not enterprise
finance, it is useful to briefly review some basic statistics on finance available to micro and
small enterprises.10
Approximately two-thirds of firms in Brazil indicate that they have a bank
loan or line of credit according to data collected through the World Bank’s Enterprise Surveys
(Brazilian data from 2009). This is a relatively high share compared to other emerging economies
such as Mexico (32%), South Africa (30%) or Turkey (59%). Virtually all Brazilian firms (99.4%)
also report having a checking or savings account and almost half (48%) say that they are using
banks to finance investments.
9 Data cited are from FINDEX 2011. 10 A focus on consumer / personal finance was agreed with the Brazilian Government for this FSAP Update Financial Inclusion TN.
12
Graph 1. Accounts at a Formal Financial Institution in Latin America and G-20
Source: FINDEX 2011
0 10 20 30 40 50 60
El SalvadorNicaragua
PeruHonduras
GuatemalaParaguayUruguayPanamaMexicoBolivia
ColombiaArgentina
EcuadorDominican Republic
LACChile
Venezuela, RBCosta Rica
Brazil
Accounts at a Formal Institution
Latin America
Account at a formal financial institution, income, bottom 40%(% age 15+)
Account at a formal financial institution (% age 15+)
0 20 40 60 80 100 120
Indonesia
Mexico
Argentina
India
Saudi Arabia
Russian Federation
South Africa
Brazil
Turkey
China
Italy
United States
Korea, Rep.
Japan
Canada
France
United Kingdom
Germany
Australia
Accounts at a Formal Institution
G-20
Account at a formal financial institution, income, bottom40% (% age 15+)
Account at a formal financial institution (% age 15+)
13
Table 2. General Access Indicators in Leading Emerging Economies
Sources: FINDEX and World Bank Enterprise Survey
22. At the same time, a relatively high share of firms in Brazil (55%) also reports
that access to finance is a major constraint. This may seem contradictory given the
high levels of participation and use of formal finance mechanisms discussed above. One
possible explanation is the hitherto high cost of credit in Brazil which is especially
binding for small businesses that lack access to capital markets and which may have more
difficulty than larger firms securing subsidized credits through official channels.11
B. Users and Products
23. Notwithstanding significant progress there are still important gaps in the
financial inclusion landscape. This is logical given the country’s size and economic
diversity and the complexity of the issue. This section of the TN provides some
11 The Technical Note on BNDES provides further insights and information on this point.
Brazil Mexico India
South
Africa Turkey
Indicator
Type of
Institution
Account at a formal financial
institution (% of population age 15+)56 27 35 54 58
Commercial
banks533.49 … 137.46 … 360.67
Cooperatives 18.61 … 10.15 … …
SSFIs 2.20 … … … 0.02
MFIs 0.04 8.37 … … …
Commercial
banks1,065.35 1,096.76 747.29 839.13 1,661.21
Cooperatives 3.79 7.24 68.9 … …
SSFIs 0.56 63.20 … … …
MFIs 1.09 30.24 … … …
Commercial
banks12.71 14.67 10.11 8 17.77
Cooperatives 3.06 1.58 2.78 … …
SSFIs 1.49 0.75 … … 0.04
MFIs 0.03 1.05 … … …
ATMs per 100,000 Adults 112.06 44.80 7.29 52.41 44.25
POS per 100,000 Adults 2,247.41 592.14 67.06 8,908.68 3,232.79
Percent of firms identifying access
to finance as a major constraint55.5 29.6 15.8 15.5 14.3
Percent of firms with a bank
loan/line of credit65.3 32 … 30.1 56.8
Loan Accounts per 1,000 Adults
1. General Access Indicators
Deposit Accounts per 1,000 Adults
Branches per 100,000 Adults
2. Access to Basic Payment Services
3. Access to Credit and Other Sources of Financing
14
additional analysis of both the accomplishments and the challenges facing Brazil as it
moves toward more inclusive financial markets with discussion on who holds accounts as
well as on use of credit, savings, and insurance.
24. Brazil has made particular progress in access to accounts in formal financial
institutions. 41% of adults at the base of the economic pyramid (bottom 40%) in Brazil
have accounts compared to only 25% on average in Latin America (see Graph 1). In
general, access to accounts among the poor is limited in the region and as low as 15% for
Colombia, 12% in Mexico and 11% in Uruguay.
25. When compared against higher income countries in the G-20, however,
Brazil still has room for improvement in access to formal accounts. Graph 1 also
contrasts access to accounts in formal financial institutions for people at the bottom of the
income distribution with the average for each G-20 country. Brazil outperforms most
emerging markets in the group (with the exceptions of China and Turkey) but is still far
from the near-universal coverage (generally above 90%) of high income nations. Further,
the difference in coverage by income levels is relatively large in Brazil – 15% - when
compared with many members of the group including all of the high income countries
and many middle income countries as well such as Indonesia, India, Argentina, Russia
and Turkey. Only China (17%) and Mexico (15%) have spreads in account access
between income levels as high as Brazil.
26. There is also an important gender gap in Brazil when it comes to access
(Graph 2). The 10 percentage point gender gap is similar to the regional average of 9
percentage point gap in favor of men but it is outside the norm for Mercosur countries
where the gap is very small (2% in Chile; 3% in Argentina; and 2% more women than
men covered in Paraguay). Within the G-20, Brazil generally fares better than its
developing country peers, and is in line with the G-20 average of a roughly 10 point gap.
27. Brazil leads Latin America in the percentage of adults with a credit card at
29%, more than double the rate of most countries in the region and near the G-20
average of 33% (Graph 3). Brazil still has room to grow this market, as penetration
levels in high income countries are closer to two-thirds of the adult population; in the
U.S. for example, cards are used for approximately half of all purchases. Penetration
levels of credit card use vary significantly across the Brazilian population, reflecting the
fact that credit cards continue to be a product focused in more urban and higher income
communities. For example, 40% of higher income consumers (top 60% of incomes) have
a credit card in Brazil compared to 14% for those at the bottom of the economic pyramid
(bottom 40%). The urban / rural divide is 37% vs. 21% - the highest absolute gap in the
region.
15
Graph 2. Accounts at a Formal Financial Institution by Gender
Source: FINDEX 2011
28. In terms of gender equity, Brazil is exactly at the Latin American average,
with 5% more males than females owning a credit card. Brazil thus does slightly
better than the regional average of a 7% male-female gap, and does better in gender
equity than many of the world’s most developed economies including France, Germany
and the United States (see Figure A2 in the Appendix).
29. Widespread access to credit cards, however, does not necessarily translate
into access to mainstream sources of formal credit. First of all, Brazilians tend not to
carry balances on their credit cards due to exorbitant interest rates which can exceed
200% on an annualized basis. Second, according to FINDEX data, Brazilian consumers
are not getting other kinds of loans from formal lenders. Figure A3 in the Appendix
shows the sources of loans taken by consumers in Latin America. Only 6% of Brazilians
indicated they had a bank loan and only 1% had loans from other private lenders, but
Brazil has one of the highest percentages of loans from family and friends at 16%. These
figures likely understate access to credit as they may not reflect retail credits (i.e., buying
on installment plans) even when backed by banks which is widespread among lower
0 10 20 30 40 50 60 70
Nicaragua
El Salvador
Paraguay
Peru
Uruguay
Honduras
Panama
Guatemala
Bolivia
Mexico
Argentina
Colombia
Dominican Republic
Ecuador
Chile
LAC
Venezuela, RB
Costa Rica
Brazil
Accounts at a Formal Financial Institution
Accounts held by women
Accounts held by men
16
income consumers, or use of subsidized or government-supported credit programs such
as the microcredit program Crediamigo or payroll loans. However, the statistics seem to
indicate that access to credit in Brazil, even among lower income consumers, is
increasingly likely to be coming through credit cards rather than other types of loan
products.
Graph 3. Credit Card Access: General vs. Bottom 40%
Source: FINDEX 2011
30. In comparison with both Latin America and the G-20, Brazil’s savings rate is
low (Graph 4). Only 21% of adults in Brazil report saving any income in the past year, a
low rate when compared to Mexico (27%), Colombia (33%) or Bolivia (44%). Brazil is at
the LAC average, however, in terms of savings at a financial institution at 10% - an
indication of the success the country has had in moving consumers toward formal
accounts. Brazil also sees generally low gaps in savings along education, income and
urban/rural lines. Along educational lines for example, there is just a 10 point gap in
0 10 20 30 40
Nicaragua
Bolivia
El Salvador
Honduras
Guatemala
Paraguay
Colombia
Ecuador
Peru
Venezuela, RB
Panama
Costa Rica
Dominican Republic
Mexico
LAC
Argentina
Chile
Uruguay
Brazil
Credit Card Access
Credit card,income, bottom40% (% age15+)
Credit card (%age 15+)
17
savings among those with secondary education or more and those with just primary
education or less. This is in contrast to 28 points in Costa Rica and the Latin American
average of a 16 point gap. Within the G-20, Brazil has the lowest savings rates except for
Turkey. However, it also has one of the lowest gaps in savings by income brackets, doing
better than many of its more developed peers including France, China and the United
States. See Figure A4 in the Appendix.
31. The insurance market in Brazil is small but growing among low income
consumers. Reportedly, the greatest market penetration is related to health, and life and
funeral insurance to help protect against illness and loss of life. There are no official
statistics on microinsurance or on the percent of policies purchased by low income
consumers but some rough estimates exist. A frequently cited study by Neri at FGV from
2009 estimates that only about 8% of consumers in economic classes C, D and E have
health insurance and only 2.6% have life or funeral coverage. Recent FINDEX data seem
to confirm these estimates and indicate that only 10% of all Brazilians purchase health
insurance and that this figure is even lower for the poor (lowest 40% by income) at about
3%. FINDEX does not have data on life or funeral policies. However other sources
project higher levels of coverage. A 2010 study by CENFRI cites estimates from private
industry of approximately 20 million funeral policies in Brazil – a figure also provided to
the FSAP Update mission by private insurers - which would indicate a significantly
higher level of coverage than Neri’s 2.6%. Survey research in low income communities
in Rio and Sao Paulo in 2009 obtained estimates of approximately 25% for insurance
coverage related to health and life/funeral.
Graph 4. Savings: Total Savings and Savings at a Financial Institution
Source: FINDEX 2011
0 10 20 30 40
Uruguay
Paraguay
Brazil
Honduras
Argentina
Guatemala
El Salvador
LAC
Nicaragua
Chile
Mexico
Venezuela, RB
Peru
Ecuador
Colombia
Panama
Dominican Republic
Costa Rica
Bolivia
Savings in Latin America
Saved at afinancialinstitution in thepast year (% age15+)
Saved any moneyin the past year(% age 15+)
18
C. Credit Reporting and Consumer Protection
32. Brazil has a strong credit reporting system but relative progress vis-à-vis
other countries in the region has slowed down recently. Brazil was an early standout
in terms of the quality and availability of credit information, making it possible for some
products, like cheques, to prosper decades ago. However, while many countries in Latin
America have adopted reforms providing for more efficient and comprehensive credit
reporting system. Brazil is only now undertaking the fundamental reform of including
positive data in credit reports.
33. Twelve 12 Latin American countries have a perfect score of “6” in the Doing
Business (DB) credit information index but Brazil is not among them due to lack of
positive data.12
Since 2006, 7 countries in Latin America have moved from lower scores
to reach a score of “6” in the 2012 DB report (Graph 5). The seven reformers are Bolivia,
the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras and Uruguay.
Other countries in the region which fulfill all the DB good practice criteria and score “6”
are Argentina, Mexico, Panama, Paraguay and Peru. While this index, as is the case with
any such device, captures only some of the aspects of quality and coverage of a credit
reporting system, it does provide a good first approximation of the strength of a country’s
financial information infrastructure and helps track reforms. More detail on credit
reporting in Brazil is provided in the Focus Section of this TN (see below).
Graph 5. Doing Business Index Score
Source: Doing Business
12
The components of the DB Depth of Credit Information Index, which are equally weighted, are: (1) Both
positive credit information (for example, outstanding loan amounts and pattern of on-time repayments) and
negative information (for example, late payments, and number and amount of defaults and bankruptcies)
are distributed; (2) Data on both firms and individuals are distributed; (3) Data from retailers and utility
companies as well as financial institutions are distributed; (4) More than 2 years of historical data are
distributed. Credit registries and bureaus that erase data on defaults as soon as they are repaid obtain a score
of 0 for this indicator; (5) Data on loan amounts below 1% of income per capita are distributed. Note that a
credit registry or bureau must have a minimum coverage of 1% of the adult population to score a 1 on this
indicator; (6) By law, borrowers have the right to access their data in the largest credit registry or bureau in
the economy.
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19
34. Financial consumer protection in Brazil is relatively strong in terms of the
rules on dispute resolution (Graph 6) but less advanced in terms of disclosure
requirements (Graph 7) or monitoring and enforcement (Graph 8).13
The lower
score on monitoring and enforcement may be influenced by the lack of a clear
institutional framework for financial consumer protection with responsibilities currently
shared by a variety of regulators and the Ministry of Justice. On disclosure requirements
it is interesting to note that the lower score is largely due to the lack of disclosure on
deposit (savings) products. The lack of consistency in transparency and disclosure on
issues such as method of interest compounding, penalties for early withdrawal and even
interest rates paid may be contributing to underperformance in savings. And while Brazil
has one of the more comprehensive dispute resolution frameworks, it also has a relatively
high level of complaints related to finance products which are registered by consumer
protection authorities (Procons). This may indicate that the dispute resolution
mechanisms which are intended to work at the level of the financial institution require
additional attention – perhaps including more aggressive supervision.
Graph 6. Consumer Protection-Dispute Resolution and Recourse
Source: Financial Access 2010, CGAP
13
These data are from Financial Access 2010, CGAP.
0 2 4 6 8 10
Bolivia
Costa Rica
Argentina
Colombia
Uruguay
LAC average
Chile
Brazil
Mexico
Peru
Dispute Resolution and Recourse
20
Graph 7. Consumer Protection--Requirements on Periodic Disclosure
Source: Financial Access 2010, CGAP
Graph 8. Consumer Protection--Monitoring and Enforcement
Source: Financial Access 2010, CGAP
D. Financial Products Suppliers
35. Four main types of financial products providers-–commercial banks, state
owned banks, cooperatives and microfinance institutions--are involved in financial
inclusion efforts. Figure 1 below identifies some of the leading institutions in each of
these categories. In addition some data was obtained on microinsurance activities by
leading private insurers.
0 5 10 15
Costa…
Brazil
Bolivia
Peru
LAC…
Argentina
Chile
Colombia
Uruguay
Mexico
Requirements on Periodic Disclosure
0 5 10 15
Costa Rica
Bolivia
LAC Average
Brazil
Argentina
Peru
Uruguay
Mexico
Colombia
Chile
Monitoring and Enforcement
21
Figure 1. Types of Financial Providers Involved in Financial Inclusion
Source: Author
36. Leading commercial banks, including Bradesco, Santander, and BMG, are
pursuing different financial inclusion strategies. Bradesco is the second largest
commercial bank in Brazil by both assets and deposits (US$355 billion and $US 116
billion, respectively, as of December 2011). The focus of Bradesco’s efforts has been to
establish an extensive network to facilitate access through a variety of channels--
correspondents, branches and ATMs--with emphasis on credit and insurance products.14
In partnership with Caixa Economica Federal (CEF) and BB, it launched the Elo card
brand which includes both debit and credit cards with a focus on lower income clients.
The goal is to reach a 15% market share in the medium term. Santander has taken a
different approach, with investment in a dedicated microcredit institution which ranks as
one of the largest microfinance institution (MFI) operations in the country after Banco do
Nordeste do Brasil’s (BNB) programs. In 2010, according to MIX data, Santander
Microcredit had more than 95,000 active clients and a loan portfolio in excess of US$75
million. Yet another approach is a focus on payroll loans exemplified by BMG, a market
leader in this segment. It focuses almost exclusively on loans to public employees and
pensioners.
37. Three state-owned banks continue to be the main source for financial
products and services targeting low income consumers. Two of these, BB and CEF,
rank among the 5 largest banks by assets, with BB leading the nation’s banks not only in
assets but also deposits, number of branches and number of employees. The third
institution is BNB. While these institutions have a broad customer base reaching both
middle and low income consumers, they also have mandates related to financial
inclusion. BB, which is now administering the postal bank correspondents’ network, is
pursuing a multi-pronged effort on financial inclusion. BB activities include a partnership
on mobile banking with the telco firm Oi, and the launch of a microinsurance product
14 In terms of bank branches, Bradesco is second only to Banco do Brasil (BB) with 4,643 nationwide.
Between 2002 and January 2012, Bradesco managed the correspondent banks run through Banco Postal –
more than 6,000 in number. Bradesco Expresso correspondent banks number more than 38,000 nationally.
Commercial Banks
Domestic Capital
Foreign owned
State Owned Banks
Caixa Economica Federal
Banco do Brasil
Banco Nordeste do Brasil
BNDES
Cooperatives
(associations listed below)
SICOOB
SICREDI
UNICRED
Microfinance
Santander
Banco Nordeste do Brasil
Others
22
with insurance leader Mapfre to be sold through the postal bank network. CEF has a
focus on housing finance and is the institution behind the Minha Casa Minha Vida
program directed at low income consumers. This bank, which boasts the largest
correspondent banking network in the country, is also the channel for payment of Bolsa
Familia payments via cards. BNB is by far the largest microcredit provider in the
country, with more than 1 million active clients in the Crediamigo program and more
than 650,000 in the Agroamigo program. In addition, the Banco Nacional de
Desenvolvimento Economico e Social (BNDES) provides financial services for small and
micro enterprises, especially through its Visa card program linked to pre-approved
vendors with purchases handled through a dedicated website.
38. Cooperative banks have also made important contributions to financial
inclusion in Brazil over the past decade, especially in the south and southeast
regions of the country. Graph 9 below shows the increasing presence of cooperatives in
the Brazilian financial system between 2000 and 2010 in terms of not only credit, but also
deposits and net worth. Table 3 reports basic data on cooperatives.
Graph 9. Share of Cooperatives in the National Financial System
0
0.5
1
1.5
2
2.5
3
3.5
4
% Net Worth
% Assets
% Deposits
% Credit Operations
23
Table 3. Basic Statistics on Brazil’s Cooperative System, May 2011
Cooperative System Central
cooperatives
CAC Members
(‘000s)
Deposits (billions
R$)
Average
deposit
(‘000s R$)
Sicoob 14 573 1,921 12.2 6.4
Sicredi 5 121 1,756 10.3 5.9
Unicred 9 112 238 5.1 21.4
Ancosol 5 161 254 0.6 2.4
Central Coops (not
confederated)
5 55 1,006 2.3 2.3
CAC
(non-afiliated)
- 293
TOTAL 38 1,315 5,170 30.5 5.9 Source: Central Bank of Brasil
39. A variety of credit and loan products are available for low income consumers
in Brazil including:
- Payroll loans (credito consignado): Available to employees through salary
deductions or to retirees through deductions from their pensions. There are some limits
on these loans – no more than 30% of one’s income or pension payment can be
committed through these loans and the maturity cannot exceed 60 months. While
employees of private firms are legally eligible for these loans, they tend to be available
only to government employees where job tenure / protections are strongest so
unemployment and consequent lack of salary for deductions is considered a minimal risk
by lenders.
- Credit cards: Credit cards are increasingly used in Brazil by consumers. Due to
high interest rates on cards – often in excess of 200% per year – most Brazilian
consumers (about 75% of card holders) pay bills in full each month. This is significantly
more than is the case in many countries, such as the U.S., where most consumers (about
70%) carry balances. For those Brazilian consumers who do carry balances, monthly
minimum payments are at least 15% of the balance by Central Bank regulation. Credit
cards may be issued by banks or through/in association with major retailers. The two
main brands are Visa and Mastercard with newer entrants such as the aforementioned Elo
and Hipercard focusing on lower income segments. Loyalty programs are common,
especially for higher income card holders and are used to compete for customers.
- Microfinance loans: These loans are mainly provided by BNB which has a
market share exceeding 70%, mostly in the North and Northeast regions of the country.
The BNB program is for productive microcredit which requires funds to be invested in a
revenue generating activity. In terms of size, the loans are small – ranging from as low as
R$100 to R$ 1,000 on average, with the maximum loan size at about R$15,000. Most
loans are for relatively short periods of time- 6 or 12 months – with a maximum maturity
24
of 36 months. Interest rates are also significantly below market levels and now are as low
as 0.64% per month thanks to the Crescer program. Santander Microcredit is a distant
second in the market for microfinance, with an average loan size of about $700 USD.
- Prepaid cards: Prepaid cards enable unbanked consumers to have access to card
technology for payment. Single use prepaid cards, such as store gift cards, were joined by
general purpose reloadable (GPR) cards in 2011. The main providers are PanAmericano
Mastercard, Ourocard Visa (with BB) and Mundo Livre Visa (Banco Rendimento). These
cards may have fees for issuance, maintenance (only Mundo Livre), for adding value and
for withdrawals.
- Savings accounts: Savings accounts have traditionally been a popular investment
vehicle in Brazil because they paid a guaranteed, tax-free rate of return even during
periods of economic instability. This policy was shifted recently, however, when the
Government announced in May 2012 that the rate would drop to 70% of the SELIC
reference rate, if that rate went below 8.5%, on new deposits. Savings accounts are
commonplace – more than 100 million exist – but represent a relatively small share of
total savings in the country.
E. Laws, Regulations and Government Programs
40. The authorities have taken a strategic and forceful approach to financial
inclusion underpinned by a multi-agency “architecture”. The Central Bank sits at the
top of this architecture and established a dedicated unit for Financial Inclusion in April
2010 as part of its Financial System Regulation Department (DENOR). The Central Bank
has hosted an annual Forum for Financial Inclusion since 2009 and publishes an annual
report on the topic. Other agencies which play key roles in various aspects of the
financial inclusion strategy include the other main financial sector regulators who form
part of COREMEC (in addition to the Central Bank, CVM (securities regulator), SUSEP
(private insurance regulator) and PREVIC (pension regulator), Treasury (Fazenda), the
Ministry of Justice (especially related to consumer protection), the Ministry of Social
Development (related to financial inclusion via transfer payments through the Bolsa
Familia program), Ministry of Communications (for mobile payments) and SEBRAE
which provides support to SMEs.
41. Brazil’s approach to financial inclusion has evolved over time establishing
new programs and products and strengthening market conduct. More than a decade
ago, initial efforts to extend access to finance relied on microcredit, followed by payroll
guaranteed loans. Over time the focus broadened to include non-credit financial products
and services including microinsurance (regulations pending) and payments (especially
related to social transfers to the poor (G2P)). There is also a growing attention given to
market conduct and transparency to create incentives for innovation and competition at
the base of the pyramid. Table 4 lists some of the most important regulatory measures
taken in the last ten years.
42. In May 2012 Brazil published the “Action Plan to Strengthen the
Institutional Environment” as part of the National Partnership for Financial
25
Inclusion (Box 1).15
This document identifies eight actions for 2012-2014 to enhance and
strengthen the opportunities for financial inclusion in Brazil. These eight action items are
listed in Box 1 below together with the key agencies to be involved. Several of these
actions relate to reforms in the legal and regulatory framework for financial inclusion to
support microfinance, mobile payments and enhanced consumer protection.
43. Brazil is also an active participant in the G20 Financial Inclusion Experts
Group (FIEG) where they co-lead with Australia the Access Through Innovation
Sub-Group (ATISG). The principles for innovation in financial inclusion are in line
with the approach taken by Brazil, focusing on government leadership together with a
coordinated approach involving public and private sector bodies, diverse service
offerings and effective consumer protection and financial education.
Table 4. Regulations on Financial Inclusion Issues
Law / Regulation Number of Law /
Regulation
Link to Law / Regulation
National Program
of
Oriented
Productive
Microcredit -
PNMPO
LEI Nº 11.110, DE 25
DE ABRIL DE 2005.
http://www.planalto.gov.br/ccivil_03/_ato2004
-2006/2005/Lei/L11110.htm
Crescer MPV 543 2011 http://www.planalto.gov.br/ccivil_03/_Ato201
1-2014/2011/Mpv/543impressao.htm
Simplified Accounts Resolução nº 3.211,
de 30 de junho de
2004
http://www.bcb.gov.br/pre/normativos/res/200
4/pdf/res_3211_v2_P.pdf
Credito consignado LEI No 10.953, DE 27
DE SETEMBRO DE
2004.
LEI No 10.820, DE 17
DE DEZEMBRO DE
2003.
Processo:
08700.003070/2010-
14
(end of exclusivity)
http://www.planalto.gov.br/ccivil_03/_Ato200
4-2006/2004/Lei/L10.953.htm#art6§5
http://www.planalto.gov.br/ccivil_03/LEIS/20
03/L10.820.htm#art6
http://www.cade.gov.br/Default.aspx?40f3021
7ee24f83acc7ad26fc6
Microinsurance Pending – coming
2012 from SUSEP
Minha Casa Minha
Vida
LEI Nº 12.424, DE 16
DE JUNHO DE 2011.
http://www.planalto.gov.br/ccivil_03/_Ato201
1-2014/2011/Lei/L12424.htm#art1
15
http://www.bcb.gov.br/nor/relincfin/Plano_de_Acao_PNIF.pdf
26
Cooperatives Resolução nº 3.859,
de 27 de maio de 2010
Correspondents Res. 3954/11
Portability Portabilidade (de
cadastro – Res.
2835/2001, de crédito
- Res. 3401/2006 e de
salário Res.
3.402/2006 e Res.
3.424/2006),
Cadastro Positivo LEI Nº 12.414, DE 9
DE JUNHO DE 2011.
http://www.planalto.gov.br/ccivil_03/_Ato201
1-2014/2011/Lei/L12414.htm
Custo total efetivo Res. 3517/07 e Res.
3909/10
Box 1--Action Plan Items for National Partnership for Financial Inclusion
1. Improve the regulatory framework for microcredit, including for institutions
specialized in microfinance, to adequately support
microentrepreneurs, as well as micro and small enterprises (Central Bank, Treasury,
Justice)
2. Encourage diversification and improvement of financial services, making them more
responsive to the needs of the population (Central Bank, Treasury, PREVIC (pension
regulator), SUSEP (private insurance regulator)
3. Define the legal and regulatory framework for mobile payments (Central Bank,
Ministry of Communications)
4. Strengthen the network of financial services delivery channels serving the
population (Central Bank, Treasury)
5. Contribute to the promotion of financial education (COREMEC members, Justice, Social Development, SEBRAE)
6. Accelerate dissemination of consumer protections afforded to financial services consumers including dispute resolution mechanisms (COREMEC members, Treasury, Justice)
7. Improve the methodology used to study financial inclusion and incorporate quality indicators (Central Bank, SUSEP, PREVIC)
8. Conduct research on the behavior and perceptions of the population in regard to the use of financial services (COREMEC members, Justice, IBGE (Brazilian Institute of Geography and Statistics, SAE, Social Development, SEBRAE)
27
II. Selected Issues in Financial Inclusion
A. The Payroll-Guaranteed Loan Program--Crédito Consignado
44. Payroll-guaranteed loans represented nearly 60% of the personal loan
market segment in Brazil at the end of 2011. Growth rates for the program have
averaged more than 30% per annum in the period 2004-2011, since the legal framework
was clarified and extended to cover not only government workers and retirees, but also
private sector employees and pensioners under INSS (the National Institute of Social
Security).16
In the same period non-consigned personal loans grew by approximately
13.5% per year. See Table 5 below for more detailed information on the evolution of the
program.
Table 5. Payroll Guaranteed Loan Program
End Year Consigned loans Non
consigned
personal
loans
Total
personal
loans
%
consigned Public
sector
Private
sector
Total
2004 19,997 3,479 23,476
46,205 69,681 33.7
2005 37,272 5,079 42,351 52,143 94,493 44.8
2006 54,556 7,802 62,358 52,531 114,889 54.3
2007 69,654 10,546 80,200 59,242 139,443 57.5
2008 79,846 12,514 92,360 75,862 168,222 54.9
2009 104,335 16,748 121,083 83,781 204,864 59.1
2010 125,299 21,198 146,497 93,734 240,231 61.0
2011* 135,957 22,591 158,548 111,949 270,497 58.6
45. By reducing the risk to lenders, crédito consignado have resulted in a
significant reduction in the interest rates charged. According to data from the Central
Bank, the average interest rate on loans obtained through the crédito consignado program
was 27.2% per year in November 2011 compared to more than 70% per year for non-
consigned personal loans (Figure 10 below.) This significant differential in rates, which
was present from the beginning of the program, allowed some borrowers to substitute
loans obtained through the crédito consignado program for more expensive credits they
were previously holding. The shift from high cost to lower cost credit provides an
unambiguous welfare improvement for consumers and there is both anecdotal evidence
and recent research which suggests that this occurred during the early years of the
program (through 2007). 17
At the same time, by creating a solid guarantee credit became
available to some low income workers or pensioners who were previously unable to
obtain a loan. A 2005 survey by the Brazilian Federation of Banks (FEBRABAN) found
that 51% of people taking a crédito consignado had never borrowed before. Research by
16
The relevant laws are 10,820 of September 2003 (medida provisoria / temporary measure) and 10,953 of
September 2004. 17
Gigliucci 2011.
28
Madeira, et al. (2010) also indicates that borrowers in the crédito consignado program
were more likely to have a small business as financial constraints to entrepreneurship
were reduced.
46. The hallmark characteristic of the crédito consignado program is the drastic
reduction in default risk due to the automatic deduction from stable (government)
sources of income-–government pensions and government salaries. For a time public
banks enforced exclusivity rules for access to crédito consignado. For example,
government employees whose payroll was administered through BB were only able to
request a crédito consignado through BB, limiting competition in this market and
contributing to higher prices. In 2012, the Administrative Council for Economic Defense
(CADE) ended the ability of public banks, such as BB, to have exclusive rights to the
crédito consignado business of government employees whose payroll they administer or
pensioners who receive benefits through a particular public bank.
Graph 10. Interest Rates on Loans by Type, 2004-2011
(Percent per year)
47. The risk of non-payment may be so low that it may be creating perverse
incentives for -sometimes aggressive- overselling of crédito consignado loans. For a
bank granting a crédito consignado, the only credit risk is whether or not the borrower
has reached his/her maximum salary allocation for debt payments–set by law in 2010 at
30% of the total benefit / salary. To further control levels of indebtedness, loan maturity
is also limited-to 5 years for retired private sector employees. The lender does not need to
review the borrower’s credit history in the credit bureau system, and total levels of
indebtedness will neither affect the consumer’s ability to get approved for a crédito
consignado or their ability to repay.
48. For many borrowers the crédito consignado looks like a great opportunity as
interest rates are far lower than on other unsecured loans but these rates remain
29
high in real terms. Price inflation in Brazil has only hovered between 3 and 7 percent
per annum since 2007. According to information provided by INSS (the National
Institute for Social Security), a higher share of pensioners take these loans in lower
income states, such as those in the North and Northeast, while they are less popular in the
Federal District or south. Further, pensioners typically are taking the maximum loan
amount and carrying this positive balance indefinitely, thus reducing their income level
by as much as 30%.
49. Going forward attention should be paid to how government workers and
pensioners are marketed these loans and the impact on their welfare should be
evaluated. Efforts to reduce overly aggressive sales techniques have begun including be
setting training requirements for agents. However, given the incentive structure in the
industry, where agents are only paid for loans they make, these steps may not be
sufficient. Looking at ways to involve the banks making the loans in the risk of non-
payment would help to curb over-selling but would also likely increase the rate charged
and reduce the access to credit for some borrowers. Impact evaluation of the program
should also be prioritized to see whether borrowers are benefiting from access to credit –
improved health outcomes, investments in productive investments or education for family
members, etc.
B. Credit Reporting–Moving to a Positive Credit Registry “Cadastro Positivo”
50. Brazil has traditionally had a strong credit information culture in terms of
negative data. SERASA is the country’s leading private credit bureau and was originally
founded in 1968 by Brazil’s domestic banks, decades before many other Latin American
countries established private bureaus. SERASA began operations focusing on the
collection of negative credit data from its members, but over time extended its scope to
include data from other public and private data sources. The other main source of credit
information in Brazil historically was the SCPC (Serviço Central de Proteção ao
Crédito), a service run by the Sao Paulo Chamber of Commerce which links to data from
retailers across the country. The Central Bank has also played an important role in credit
information. For example, the wide use of post-dated checks in Brazil was possible
because of easy and low-cost access to information on bounced checks provided by the
Central Bank. This service made it possible to use post-dated checks as a type of retail
credit as well as a payment mechanism.
Major changes in credit reporting in Brazil—From 2007 to the present
51. SERASA was the fourth largest bureau globally (trailing only the “Big
Three” international bureaus Experian, TransUnion and Equifax) when it was a
acquired by Experian in 2007. Experian is the majority shareholder, with two of
Brazil’s largest banks – Itaú Unibanco and Bradesco - holding the remaining minority
shares. The acquisition was important for several reasons. It provided access to
international capital as well as to Experian’s global technology for data management and
analytical solutions. The new ownership structure also put the firm in line with global
good practices for the industry by removing the banks (the primary providers and users of
30
data) from management of the firm. Third party ownership of credit reporting firms helps
to align incentives toward expansion of the database and its use by a broader set of
financial and commercial firms. On a related point, it also is likely to increase the
quantity and quality of decision tools offered by the bureau, creating a more level playing
field for credit analytics. (When banks own a credit bureau they may try to limit the data
collected to client segments that are of greatest interest or limit access and use of the data
– including the spread of credit scores and other analytical tools - by potential
competitors who are not owners of the bureau.)
52. The other main private bureau today is Boa Vista/Equifax which is
significantly smaller than SERASA, but growing. Boa Vista / Equifax was created in
2010 through a partnership between the Chambers of Commerce of Sao Paulo, Rio de
Janeiro, Paraná and Porto Alegre, together with the investment fund TMG Capital and the
international credit bureau firm Equifax. In addition to collecting data from banks, firms
and other sources, Boa Vista commercializes data from the SCPC. This is an important
strategic advantage for the firm as it seeks to build market share. It also brings investment
capital and technical know-how to the management and distribution of this rich dataset,
increasing its value to financial providers through decision tools and analytics.18
53. There is also a public credit registry managed by the Central Bank of Brasil. Known as the SCR or Credit Information System, it includes both positive and negative
data on all customers with loans in excess of R$ 1,000 at regulated financial institutions.
The lower bound on loans reported was recently changed to R$ 1,000 from R$ 5,000 to
include more small borrowers in the public registry. The main objective behind this
change was to make it easier for both lenders and regulators to accurately measure
indebtedness levels for a larger share of the population, so as to promote wiser use of
credit. In addition to loan amount, lenders provide information on the status of the loan,
indicating whether payments are on time, late or in default. Since private bureaus only
collect negative data at this time (i.e. information on loans where there are late payments
or defaults), this is the only source of reliable information on levels of credit exposure
(i.e. total indebtedness which includes loans in good standing). Only regulated financial
institutions can access these data through their dedicated communication lines with the
Central Bank, and they pay a very small fee for this access. Private credit bureaus and
other private firms providing credit analysis and credit decision tools do not have access
to the data in the SCR. The CPL allows the sharing of details of the credit transactions
with other sectors of the economy.
Seizing the opportunity --Cadastro Positivo
54. Recent changes in the credit reporting industry in Brazil have created a solid
foundation for growth and for the sector to play an increasingly strategic role in
financial markets. These include the aforementioned change in ownership of the
dominant bureau SERASA; the strengthening of the secondary credit bureau BoaVista
18
Some of the local retailer associations under CNDL did not join the BoaVista partnership and have since
entered into a partnership with SERASA to disseminate their data.
31
Equifax through a partnerships with leading Chambers of Commerce and the
commercialization of SCPC data through Boa Vista (offering a more technologically
advanced platform and credit tools); and the expansion of the SCR to include small loans
to a minimum size of R$ 1,000. The next major reform, which is poised to take effect in
mid-2012, is the development of the “cadastro positivo” or positive credit data in Brazil.
55. Brazil has lagged behind the global trend--and internationally recognized
good practice--of collecting and distributing both positive and negative credit data. The lack of positive credit information is the reason that Brazil scores 5 out of 6 on the
Doing Business “Depth of Credit Information” index – below the regional average of 5.4.
56. Legal challenges to sharing positive credit data have impeded the
development of more comprehensive reporting. It is also possible that the dominant
financial institutions have resisted the cadastro positivo reform. Sharing positive credit
data helps to level the playing field, increasing competition in credit markets and thereby
removing some of the information rents that the largest institutions enjoy from their
market share and proprietary databases. Once the reforms are implemented, experience in
other countries suggests that even the largest financial institutions become enthusiastic
advocates of comprehensive reporting for the improvements it offers in risk management
and new business development opportunities.
57. The Cadastro Positivo Law (CPL), No. 12.414, was passed in June 2011. It was
regulated in October 2012 through Decree No. 7,829 and Resolution No. 4,172 of
December 20, 2012. The FSAP mission, which took place in March 2012, identified
several important issues to be addressed through regulation including the following:
-Defining the mechanism for consumers to authorize their participation in the
cadastro positivo;
-Strengthening the regulatory framework for the credit reporting industry
including issues of supervision and enforcement; and
-Clarifying the relative roles of the public and private registries and potential
mechanisms for cooperation – for example, related to the use of public data for
decision tools such as credit scoring
58. The Law which provides the basis for the cadastro positivo states that
consumers must authorize their participation (i.e., the collection of their positive
credit data) in the credit reporting system. This provision of the law means that the
cadastro positivo is an “opt in” system where consumers must take an action (authorize
their participation) in order to participate. This provides consumers with more control
over their data but it also increases the cost of creating positive credit histories and almost
certainly will reduce the extent of coverage of the cadastro positivo. Behavioral
economics provides many examples of the influence that the type of default options have
on behavior and here the default (no action taken) will be to remain outside the cadastro
positivo. 19
When reforms to the law are considered in the future, this provision –
19
See the article “Do Defaults Save Lives?” in Science by Johnson and Goldstein, November 2003, Vol.
302, pages 1338-1339.
32
requiring special express consent for participation in the positive credit history database –
should be reviewed to determine if it can be eliminated or streamlined within the
notification provided to borrowers and potential borrowers when they apply for a loan.
59. Since the law requires specific authorization to participate in the cadastro
positivo, the process should be made as simple and easy as possible. Ideally this would
be a short, plain language text (ideally just a few hundred words) which defines the
cadastro positivo, how it will be used by lenders and mechanisms for redress. The
consumer would simply sign and date the document if they agreed to participate. An
early version of the authorization document reviewed by the FSAP mission was several
pages long and included multiple clauses which had to be marked. Depending on the way
they were answered, it appeared that the document could lead to ambiguous answers on
the customer’s willingness to participate. The authorization form which was ultimately
included in Decree No. 7,829 is a single page document which also includes multiple
fields to be marked, related to the sharing of information across databases and the
collection of information from utility bill payments. Regulators should closely monitor
consumer behavior regarding data sharing obtained through this form including whether
the way in which authorizations are requested (order, phrasing used, instructions
provided) affects levels of participation.
60. Another outstanding question is whether one signed document authorizing
participation in the cadastro positivo is adequate for participation throughout the
system or applies only to a specific financial or credit reporting relationship. For
example, if Bank A provides their credit customers with the authorization form for the
cadastro positivo, does this apply only to the customer’s dealings with Bank A or to all
their activities where positive data could be generated (i.e. with other banks, with
retailers, with utilities and service providers, etc.)? There are many reasons for supporting
a “blanket” authorization procedure where consumers are approving the development of a
positive credit history across all their financial and commercial relationships when they
agree to participate. Imagine the potential complexity – for both consumers and for the
credit reporting firms - if each of Brazil’s more than 100 million economically active
consumers had to authorize the collection of positive data in each and every economic
relationship they had. It is likely that some but not all financial dealings would be
approved for participation in the cadastro positivo under this scenario. This would reduce
the impact of the reform because coverage would be less than complete, even for those
customers who had approved their participation with a lender in the system. It would also
add a significant layer of complexity to the data management at the credit bureau, adding
to the cost of creating and maintaining these data. The authorization form which was
ultimately approved through the regulation automatically covers all financial and
commercial relationships except for utilities which consumers can also opt into for data
sharing.
61. There is also a question as to whether separate authorizations will be needed
for each credit reporting firm or whether the authorization should cover all
approved / legally recognized credit bureaus. In order to maximize the availability of
positive credit data and reduce the costs of constructing these databases, authorizations
33
should clearly indicate that they cover data collected by any legally recognized credit
reporting firm. If each credit bureau would be asked to separately collect authorizations
this would not only be confusing for many consumers, but would also likely favor the
market leader, SERASA, which would likely negatively affect competition in the market
for credit information. The authorization form that was approved requires consumers to
explicitly approve participation for each credit bureau but this can be done on one form.
Authorities should monitor closely whether consumers are approving data sharing for all
bureaus or only for one, as this has direct implications for competition in the credit
reporting industry.
62. The move to collect positive credit data has also increased the need for a
more comprehensive regulatory regime for credit reporting in Brazil. Reporting on a
consumer’s negative credit history is often viewed as a public service – alerting others to
instances of bad faith – and expectations of data privacy are less binding as the goal is to
compel payment by sharing the negative credit information. The context changes
substantially when positive data are collected. Consumers have a reasonable expectation
of confidentiality for their positive data, with exceptions allowed by law or by their
agreement – as when a consumer applies for a loan. The central role played by credit
bureaus in financial market decisions, together with the data privacy issues relevant to
consumers, are reasons for adopting a more explicit and rigorous supervisory framework
for credit reporting, which should include some kind of licensing procedure.
63. Today, the cadastro positivo is not a popular or well understood reform,
particularly on consumer protection issues. There are lingering doubts whether there
are adequate consumer protection mechanisms in place –related to issues of access to the
data by both the data subject (borrower) for his/her own information and by financial
providers and other businesses and recourse mechanisms available when the data is
inaccurate. Consumer protection groups have criticized the law including IDEC
(Brazilian Consumer Protection Institute) which sent a letter to the President asking that
the law be revoked and the Sao Paulo PROCON (Program for Consumer Protection).
Clarifying the consumer protection framework and developing a public outreach
campaign which involves a variety of stakeholders and not only the credit bureaus, banks
and MOF/BCB will be important for establishing broader public understanding and
support for this important reform.
C. Mobile Payments, Credit Cards and the Rule of “Sobre Preço”
64. Mobile payments have yet to develop in Latin America and Brazil is no
exception. According to FINDEX data, only one percent of Brazilians surveyed had used
mobile banking to send or receive money – below, but similar, to the regional average of
just 2%. While mobile payments have not developed to any extent, the telecom
infrastructure which would enable them is well advanced. Anatel, Brazil’s National
Telecommunications Agency, reported in May 2012 that there are now more than 250
million active cell phone lines in the country resulting in a coverage ratio of 130 lines per
34
100 inhabitants.20
65. There are some mobile payments initiatives underway in Brazil, all of which
currently relate to merchant payments. One of these is Paggo which is a joint venture
involving the credit card processing firm Cielo and the mobile operator Oi. The primary
business model for Paggo is to facilitate payments for credit card users through a bank
centric model. Paggo thus complements the existing business of Cielo – one of the firm’s
owners. To date, however, the service has had limited growth. According to a 2011 IFC
study, the venture is not yet profitable and has only 250,000 users, of which 100,000 use
the service only for bill payment of their cell phone account.
66. There are other ventures including one which the mission visited involving
the other large card processor, Redecard and the credit card company MasterCard,
together with the mobile operator Vivo and Caixa. This partnership has a pilot with
Banco Palmas, a community bank in Fortaleza. At the time of the mission in March
2012, this pilot remained very small, with only 40 Banco Palmas customers participating
(this figure corresponded to those members who had installed the chip in their phone
necessary for effecting mobile payments) and only 5 to 6 businesses. Banco Palmas
officials stated that it was difficult to get people interested in the program because the
design of the pilot provided few tangible benefits – being able to use a cell phone to pay
in just a handful of stores. It was noted that early in the pilot the partners had wanted to
require / link the mobile payment to use of MasterCard credit cards but this was deemed
infeasible due to the low income of the Banco Palmas customer base and subsequent
limited use of credit cards.
67. The model for mobile payments in Brazil is clearly bank centric to date,
rather than led by telecom firms as was the case in Kenya with M-Pesa or in the
Philippines with G-Cash. Banks in Brazil have incentives to go slowly with mobile
payments including the fact that they have invested in a large POS network, they earn
high fees from credit card transactions, and they are still working on increasing
acceptance of credit cards among lower income consumers and do not want to add further
complexity or confusion with another new payment channel.
68. The IFC’s report on mobile payments in Brazil analyzes this issue as follows:
“It is unclear whether a business case for m-payment of bills could be made for
banks, as they are currently being paid approximately R$0.90–R$1.20 (US$0.51–
US$0.68) for accepting bill payments by the payee. Thus, along with the fee from
companies to issue and process boletos, revenue from each bill payment is
currently approximately R$2 (about US$1). Reducing their own revenue is clearly
not in the interest of the banks, though one bank could try to take away market
share from others by offering lower costs. Mobile operators (or a third party) may
20
Slightly more than 20% (54 million) have 3G connections enabling internet access and this share is
expected to continue to grow rapidly, as Brazil is seen as one of the strongest markets globally for smartphone expansion. While mobile payments can be built on a 2G infrastructure, as in Kenya with the M-
Pesa network, 3G provides options for more sophisticated consumer interfaces for providers and for a
greater variety of tools and resources to support financial education, comparison shopping, etc.
35
have a potential business case in capturing part of the bill payment market. As an
illustration, Net’s annual bill payment requirements could represent potential
revenue of approximately R$96 million (about US$55 million).
Utilities and other companies may have an interest in reducing the costs of bill
payment, but this alone is not a powerful driver; for example, Net’s typical bill is
above R$100 (US$57), so an extra R$2 (US$1.14) for bill payment processing is
not significant. Both mobile operators and the utilities face the powerful banks,
which seem to control the billing system in Brazil.”21
69. Policy reforms in recent years have addressed some of the price and
competition issues related to card payments. In particular, in July 2010 the Central
Bank issued regulations ending the exclusivity arrangements existing between Visa and
MasterCard and their merchant acquirers – Cielo and Redecard. This ushered in a period
of competition during which the average of Merchant Discount Rates fell by about 5%.
However, the market for acquirers remains highly concentrated with more than 90%
market share held by Cielo and Redecard and merchant fees remain high by international
standards.
70. The high cost of credit cards remains a policy concern, especially given the
expansion of these products in recent years to lower income segments including to
“C” class consumers. On an annualized basis interest rates for balances held are
frequently in excess of 200%. The cost of loyalty programs to attract premium consumers
and the fact that relatively few card customers carry balances (about 70% pay in full each
month – about twice the level in many other countries) puts upward pressure on interest
rates for those customers who do use cards for credit. If there is an economic slowdown,
lower income consumers- and especially those who are new to credit cards - are at risk of
using the card to cover basic expenses and falling into a rapid spiral of debt. The behavior
of these consumers should be closely monitored and efforts made to further educate
people on the cost of credit, through both targeted outreach efforts and enhanced
disclosure at the time of purchase and on the regular billing cycle. The Government also
recently reduced the rate charged on personal loans by the largest state owned financial
institutions – BB and CEF – a move to put further downward pressure on private sector
lending rates.
71. A pending item on the reform agenda is the ability of merchants and others
to differentiate the price consumers are charged based on the payment channel
used. This is commonly known as the rule on over pricing or “sobre preço” – a term that
is, in itself, misleading. As the rule stands now, merchants must charge a single price
whether clients pay in cash or use their credit or debit card or another means of payment
such as mobile payments. This has a positive impact from the standpoint of formality as it
encourages increased use of cards (both debit and credit) for payment. But it also has
21
IFC Mobile Money Study Brazil 2011, page 8.
http://www.ifc.org/ifcext/globalfm.nsf/AttachmentsByTitle/MobileMoneyReport-
Brazil/$FILE/MobileMoneyReport-Brazil.pdf
36
several potentially negative consequences listed here:
i) Customers using cash are subsidizing customers using higher cost—from the
retailers’ perspective--payment channels such as cards. This is a particular
concern since consumers with lower incomes are less likely to qualify for
credit cards and more likely to buy with cash. If merchants cannot
discriminate between different payment channels then the price charged must
take card fees charged to retailers into account and spread them over both card
and cash customers.
ii) Consumers are misled about the costs related to both payments and credit and
are told that there is “no interest” charged on the installment loans – known as
“creditos parcelados”. This is not accurate as there is an implicit interest rate
in the price of goods (covering the credit which is essentially being provided
in the installment plan) which is borne by all consumers.
iii) The procedure encourages people to buy on credit as there is no difference in
the nominal price between paying today or in the future (as through the
popular installment plan), making credit a more attractive, lower cost, option
than might otherwise be the case.
iv) Retailers and other firms have less bargaining power with the banks and card
processors since the rule states that they must charge a single price in the
marketplace and cannot differentiate by channel such as by offering lower
prices for consumers paying with cash – or with lower cost alternatives which
might include mobile banking solutions.
72. Mobile payment solutions which do not involve the major acquirers, Cielo
and Redecard, could bring competition to the retail payments market. These
solutions would likely promote person to person transfers as well as payments to
merchants, utilities and other service providers. Thus they could provide competitive
pressure on the existing POS/ card infrastructure supported by the banking sector and
further help to reduce costs over time.
D. Consumer Protection and Financial Capability / Education
73. Consumer protection and financial capability and education are core
components of responsible financial inclusion and Brazil has made important strides
on both of these fronts.22
In the case of consumer protection, financial sector authorities
have addressed a number of issues through regulations and Brazil compares favorably
with other nations on basic legal protections afforded to consumers. However,
responsibility for financial consumer protection is divided among a variety of
government regulators and agencies which poses problems related to developing a
common agenda and shared priorities as well as for effective oversight and enforcement.
In terms of financial capability, the government and the private sector collaborated on a
22
For a good overview of these issues in the context of financial inclusion see CGAP Focus Note No. 73:
“Responsible Finance: Putting Principles to Work”. http://www.cgap.org/gm/document-
1.9.54128/FN73.pdf
37
highly successful pilot financial education program for high schools. Future challenges
relate to expanding the program nationwide and developing a strategy for the adult
population.
Financial Consumer Protection
74. The Ministry of Justice in Brazil has primary responsibility for consumer
protection across all economic sectors as per Law Number 8.078/90. A recent
complement to this law, Decree, No. 7.738, from May 2012, establishes the National
Secretary for Consumers Protection within that Ministry to supervise and coordinate
national consumer protection policies. This raises the stature of this unit which was
previously only a department within the Ministry of Justice.23
It is not clear to what
extent this change would actually increase staff or resources available for consumer
protection. At the time of the mission there were only about 25 staff assigned to this unit.
75. While the National Secretary for Consumers Protection has responsibility for
all economic sectors, a few of them account for the bulk of the complaints and
finance is in second place. Statistics developed by the Ministry of Justice indicate that
there were more than 26,000 complaints related to finance in 2010, representing 22% of
the total, second behind a broad category termed “Products” with more than 68,000
complaints (56%).24
However, other 2010 data from this same source suggest that
financial products and services are responsible for an even higher percent of complaints.
The combined categories of “bank services”, “credit card services” and “other financial
services” *are together responsible for more than 39% of all complaints - second only to
cell phones which occupy more than 45%.25
76. The consumer protection unit in the Ministry of Justice has limited resources
for its mandate, and does not have even one staff member working full time on
financial products and services.26
There are several ways that they seek to compensate
for this including working closely with the Central Bank and other financial regulators
(CNBV, SUSEP, PREVIC) on financial consumer protection issues. In some instances,
regulators directly affect consumer protection through regulations they issue. In other
instances regulators work with the consumer protection unit in Justice on studies and to
draft new laws. One example of this is the comprehensive review of the Brazilian
payment card industry report published jointly by the Ministry of Justice, Ministry of
Finance and the Central Bank in 2010 which is discussed in the next section of this
report.27
However, these kind of one-off arrangements appear to be less structured or
clearly defined than is warranted given the size of the Brazilian financial system.
23
This unit was commonly referred to as “DPDC” shorthand for the Department of Consumer Protection
and Defense. 24
These data are presented in the Ministry of Justice webpage:
http://portal.mj.gov.br/data/Pages/MJ5E563276ITEMIDBB35096A2A7B47CA83C3CACF4C19EA87PTB
RIE.htm 25
Cadastro Nacional de Reclamações Fundamentadas 2010, Relatório Analítico, page 29. 26
As per the interviews at the Ministry of Justice with the DPDC during the March 2012 FSAP mission. 27
See: http://www.bcb.gov.br/Pom/Spb/Ing/Payment_Cards_Report.pdf
38
77. Procons provide an accessible point of contact for consumers but they too
lack staff with financial sector expertise. At the state and local level, consumer
protection bureaus known as “Procons” provide services directly to citizens across all
product and service categories and through a variety of means (in-person at offices; by
phone; even through mobile “Procon” vans).
78. On several key consumer protection issues leading Procons have taken
positions against those supported by financial regulators and arguably detrimental
to the better interests of consumers. For example, Procons have criticized the CPL on
the basis of concerns over data protection – which are valid - but have not balanced this
by discussing the potential gains from the cadastro from more transparent and
competitive credit markets. In the case of the payment card industry, Procons defend the
“one price” or “nao sobre preco” rule arguing that consumers should not be subject to
higher costs for goods purchased with credit cards instead of cash. However, this is a
position which further strengthens the hand of card processors in their dealings with
retailers and may contribute to higher prices – clearly not in consumers’ interest.
79. An in-depth review of the institutional framework for financial consumer
protection in Brazil should be undertaken with a view to both identify existing gaps
and future challenges rising from innovation such as an increasing role for mobile
money. Experiences of other countries could provide useful input including efforts in the
U.S. and Mexico to create a single dedicated agency for financial consumer protection.
The review should also pay attention to the demand side and consumer preferences
related to consumer protection in order to identify ways to simplify processes, increase
transparency and enhance satisfaction with effective protection and recourse mechanisms.
Financial Capability / Financial Education
80. Financial capability and financial education relate to many public policy
objectives, financial inclusion being one of these. A myriad of stakeholders in Brazil
(including various federal ministries, financial sector industries, entrepreneurship
associations, credit cooperatives, etc) are interested in preparing consumers at all income
levels for the increasingly complex financial decisions that they are required to make.
For example, helping consumers to avoid financial frauds and use insurance and other
financial products to mitigate risks, as well as to use finance to support business
development and entrepreneurship and increase the levels of citizen empowerment and
engagement. Financial education objectives thus extend beyond financial inclusion to
issues of financial stability, healthy competition in the financial sector, economic
development and long-term savings promotion.
81. Financial education is one of the three pillars of Brazil’s financial inclusion
strategy. The other two are: data gathering, compilation, and diagnostics to measure both
supply and demand sides of financial access; and the legal and regulatory framework
necessary to support financial inclusion including financial innovation. The objective of
financial education efforts is to help consumers – especially those who are new to formal
financial markets - use financial services to improve their economic and social wellbeing.
39
82. The groundwork for a multi-agency partnership on financial education was
laid in 2006 with the formation of the Supervisory and Regulatory Committee of
Financial Systems, Capital Markets, Private Insurance and Social Welfare, known
by its much easier to remember acronym, COREMEC. In 2007 financial education
became one of the early topics the group addressed in a joint manner, through the
creation of a Financial Education Working Group (FEWG). Whereas consumer
protection responsibilities are defined in part by law, which affects roles that different
public bodies can take, financial education lacks such strictures and this allowed
policymakers to try new modes of cooperation.
83. A fundamental objective of the FEWG was to develop partnerships beyond
the four core members, and external partners were invited to join the group soon
after it was created. Partners included other government bodies such as the Education
and Justice Ministries, private sector organizations such as the FEBRABAN and the
stock market exchange (BM&FBOVESPA), and academics.
84. The national strategy for financial education known by its acronym, ENEF,
was created by a Presidential Decree in December 2010 and was developed
concurrently with a school-based financial education program. The national strategy
also includes a focus on monitoring and evaluation of programs – an approach which was
followed in the pilot program and independent evaluation conducted on the school-based
program. ENEF basically codified and formalized the working arrangements that had
been developed over several years among a number of public and private entities around
financial education.
85. The first major initiative to be developed under Brazil’s National Financial
Education Strategy was a school-based program for public high schools. The focus
on youth reflects the Government’s long-term commitment to strengthening financial
capability in the population. The goal is to shift financial attitudes and behaviors among
young people and instill positive financial habits that will last into adulthood.
86. The goals of the financial education program mirror those of the national
strategy. They are: (1) development of personal finance skills; (2) promotion of savings
and avoidance of over-indebtedness; and (3) promotion of financial inclusion. Among
these three objectives the emphasis is on the first item - developing personal financial
skills that empower youth to make responsible and autonomous financial decisions.
CONEF has carefully avoided using a judgmental tone or heavy-handed approach in the
school curriculum on issues such as savings, consumption and debt. Consumption goods
may contribute to income generation (such as appliances that save time spent on domestic
chores or that can be used in home based businesses), education and access to
information (computers are a key example) or increased security for oneself or one’s
family (televisions or videogames that keep teens off the street and away from danger).
At the same time, there is a valid concern that exists about the wisdom of some of this
spending especially when consumers enter into debt for their purchase. For this reason
the curriculum also stresses the importance of saving and planning and distinguishing
between needs and wants.
40
87. Results from the final evaluation indicate sizeable increases in the average
level of financial proficiency of students in the treatment group and in their savings
behavior (i.e. those receiving the financial education curriculum). 28
For example,
students’ financial proficiency, or knowledge of financial products and how to use them,
increased by 5% more for those in the treatment group compared to those in the control
group. Similarly financial autonomy, a metric developed to measure reflexive, emotional
and function autonomy, increased in both groups, but gained 3% more among students in
the financial education program.29
In terms of savings, students in the course were more
likely to express an intention to save as well as have higher levels of actual savings.
Graphs 11 and12 present some of these key findings.
88. The financial education course for high school students also included a
successful outreach to parents. The impact evaluation also found that students in the
program whose parents also received some financial education had significantly higher
levels of savings than those whose parents had not received this training (Graph 13).
Further, the evaluation showed that the parents themselves improved their behaviors, for
example by developing financial planning behaviors such as listing expenses. The
experience with the school-based financial education project is providing valuable input
to the planning of outreach programs for adults, which will use a similar methodology
and approach.
Graph 111. Average Financial Proficiency Score
28
Evaluation results were presented to the public on June 11, 2012 at the Workshop on Financial Education Impact
Evaluation at the Bovespa’s offices in Sao Paulo. The graphs in this section are based on that presentation. The final
paper by Bruhn, Legovini, Zia, et.al. was issued early this year. Results were already discussed in the Brazilian press:
http://m.g1.globo.com/economia/noticia/2012/06/bird-aprova-projeto-de-educacao-financeira-a-adolescente.html
29 Reflexive autonomy is defined as the extent to which one thinks and plans before making a purchase;
emotional autonomy refers to one’s comfort in thinking and talking about financial issues; functional
autonomy refers to one’s actual saving practices and ability to save.
50
56
59
50
60 62
Baseline Mid-term End-line
Control Treatment
41
Graph 122. Average Financial Autonomy Index
Graph 133. Average Percentage of Income Saved
49 49
51
49
51
52
Baseline Midterm Endline
Control Treatment
16.5
20.5
Endline
Parent control Parent treatment
42
References
Getting Credit Report, Doing Business 2012
http://www.doingbusiness.org/data/exploretopics/~/media/FPDKM/Doing%20Business/
Documents/Annual-Reports/English/DB12-Chapters/getting-credit.pdf
Bold, Chris, Porteous, David and Rotman, Sarah. (2012). “Social Cash Transfers and
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43
APPENDIX
Figure A1
Share of Population with Accounts at a Formal Financial Institution 2011
44
Figure A2—G20 Gender gap in Credit Cards
(Male-Female)
Source: FINDEX 2011
38
20
17
12
12
10
8
7
5
4
3
3
2
2
1
1
-6
-6
-6
Turkey
Saudi Arabia
Italy
Germany
United States
France
Mexico
United Kingdom
Brazil
Argentina
Russian Federation
Japan
South Africa
China
Indonesia
India
Korea, Rep.
Australia
Canada
45
Figure A3—Loan in the past year by source
Source: FINDEX 2011.
0 20 40 60
El Salvador
Venezuela, RB
Nicaragua
Argentina
Honduras
Costa Rica
Chile
Brazil
Guatemala
Uruguay
Latin America & Caribbean(developing only)
Bolivia
Ecuador
Panama
Peru
Mexico
Paraguay
Colombia
Dominican Republic
Loan from afinancialinstitution
Loan from aprivate lender
Loan from anemployer
Loan from familyor friends
46
Figure A4—Savings Income Disparity 1/
Source: FINDEX 2011.
1/This graph shows the percent difference in households who state they are saving between the top 60% and bottom
40% by income. In the case of Brazil, for example, 27% of high earners state they are saving but only 12% of lower
income workers for a 15 point difference.
0 5 10 15 20 25 30 35
Germany
United Kingdom
Russian Federation
India
Turkey
Saudi Arabia
Argentina
Italy
Indonesia
South Africa
Brazil
France
Japan
Mexico
Australia
China
Korea, Rep.
Canada
United States
