By Marina Grossi*
Eliminating poverty and reducing inequality in income distribution to tolerable levels are goals that must be on the highest priority agenda in Brazil and the world. The exclusion of millions of families from the formal market represents a strong obstacle to the construction of a truly sustainable model.
We can go beyond the already recognized income transfer projects promoted by governments and expand the impact of these projects on an exponential scale, with an increase in the participation of the business sector, the main agent in generating jobs and income in Brazil and around the world. Instruments for this already exist.
Microfinance programs – including credit, insurance and other financial market products for small entrepreneurs, formal or informal – are among the most promising strategies to combat social exclusion today. However, it operates in a market segment that is still very incipient. Worldwide, around US$ 25 billion are invested per year by the microfinance sector. This amount, sufficient to meet just 10% of demand (people economically active in microenterprises), is insignificant when compared to the US$ 225 trillion that the global financial market moves annually.
In Brazil, microfinance portfolios operate with R$ 1.8 billion (or US$ 540 million), an equally small level when we look at our pent-up demand. There are 52.8 million people over the age of 16 excluded from the formal financial market and 40% of our population living informally.
This vast population layer – in the case of Brazil – those who graduated from Bolsa Família and those who currently occupy classes C, D and E – is unable to grow safely because they do not have access to financial services. Microcredit boosts business and microinsurance and microinvestments guarantee the maintenance of the assets obtained. The portion that lives on less than three minimum wages, which comprises more than 80% of the Brazilian market, would be the microfinance audience, with emphasis on women who today play a fundamental role in supporting families at the base of the pyramid.
Microcredit, the first type of microfinance, began to be offered in Brazil at the end of the 90s through a pioneering initiative by Banco do Nordeste, which had the merit of successfully replacing philanthropy with market rules, charging interest rates and analyzing risks, but in a way more suitable for the public who could not provide the traditional guarantees required by banks, such as relevant assets or income.
Unlike philanthropic initiatives, microfinance programs generate benefits for all actors involved, starting with the entrepreneur and his neighbors, since 70″/-? of the income generated by small businesses circulates within the community in which they live. For companies, prospecting this new business has strong expansion potential, values the intangible assets of financial institutions, strengthens the formal market and the consumption of products and services. The government sector increases its revenue with income generation and increases its capacity to invest in sanitation and environmental recovery programs, education, mobility, security and many other demands.
The Central Bank took an important step. Since 2011, it has provided for the allocation of at least 2% of the balances of demand deposits raised by financial institutions for credit operations aimed at the low-income population and micro-entrepreneurs. A recent publication by the Brazilian Business Council for Sustainable Development (CEBDS) “Microfinance: microcredit and microinsurance in Brazil the role of financial institutions” – sets out the Brazilian scenario and proposes further discussions.
From this, we can outline new strategies to provide financial sustainability and, thus, make this promising and transformative business model viable.
*Marina Grossi is president of CEBDS (Brazilian Business Council for Sustainable Development)
