Brazil: Betting On The Working Poor
Rosemary de Fatima Nunes de Almeida opened her first bank account two months ago. It's an account with a difference. Banco Popular do Brasil didn't make her jump through hoops to get it. They didn't even require proof of income -- which is good, since Nunes runs a cash-only business in São Paulo selling women's clothes. "I tried to open an account at other banks, but they made so many demands I gave up," says the 38-year-old mother of four. Now, Nunes can accept payment in checks without the humiliation of having to ask friends to cash them. And she can get credit to smooth out her cash flow. "You can't imagine the difference it makes to my life," she says.
Nunes used to be one of 40 million Brazilians with no access to the financial system. Like her, they couldn't furnish the necessary paperwork to open an account -- or were too intimidated to try. Others simply had nowhere to go: Of Brazil's 5,500 municipalities, 1,700 until recently had no banking services. That means a huge chunk of the population couldn't save money in interest-bearing accounts, couldn't make purchases on credit, and couldn't build up the kind of financial record that could help them qualify for a mortgage or a car loan.
Now that's changing, thanks to regulations that allow banks to offer a new type of account, designed especially for the poor. Today anyone with a national identity card and tax number can open a bank account. And they don't have to walk into a bank branch to do it: The new accounts are available at corner groceries, post offices, and gas stations. With a PC or just a magnetic card reader, even a baker can be a banker, handling transactions such as bill payments, deposits, and withdrawals, and earning fees for each transaction.
For Brazil's banks, it's a chance to cast a wide net at little expense. The overhead is minimal, since there are no bank branches. And the cost of capital? Well, it's close to zero. That's because regulations introduced in 2003 allow banks to use up to 2% of their reserve requirement -- money that would otherwise be parked in a non-interest-bearing account at the Central Bank -- to make small loans to the poor. The interest charged on such loans cannot exceed 2% a month, a steal compared with the 10% to 12% most Brazilians endure. The amount of the loans is also capped, at $110 for individuals, and $370 for small businesses.
The biggest by far of the new people's banks is Banco Postal, which operates out of post offices around the country and boasts 2.8 million accounts. Banco Postal is run by Bradesco, Brazil's top private-sector bank. The first branch opened in remote São Francisco de Paula in March, 2002. "Before we arrived, people in São Francisco de Paula had to go 10 kilometers to the nearest town with a bank to withdraw salaries or pensions," says André Rodrigues Cano, a Bradesco director.
Banco Postal's main competitor is Banco Popular do Brasil, a lean operation that is an offshoot of state-owned Banco do Brasil. Popular began operations in February of last year and has since racked up more than a million accounts. It employs a staff of just 80 to administer the bank, and farms out the work of running the retail network to financial-services companies. These contractors get a cut of Popular's revenues, as do the owners of the shops and other outlets offering its services. CEO Ivan Guimarães says that thanks to the low overhead, each new account costs the bank just 55 cents to open, compared with $17 at Banco do Brasil. Guimarães sees the new business as an investment for the future: "As the incomes of the poor increase, they will need banking services. We have to get to them first."
Brazilian authorities are pleased with their financial experiment. "Our objective, to include more people in the banking system, is being met fantastically," says Sérgio Darcy, a Central Bank director. Rosemary Nunes and millions of Brazilians like her are living proof.
By Jonathan Wheatley in São Paulo