Since the founding of the Grameen Bank in 1976, the use of microfinance in development economics has proven a remarkably effective method of providing credit to the impoverished. Often lacking access to even basic financial services, micro-businesses can benefit from the increase in liquidity. To offer affordable products, organizations and financial institutions lend on the basis of solidarity lending, where microentrepreneurs form lending groups to borrow money. A loan is given to one member of the group, and it is the responsibility of all members to ensure its repayment. This allows lenders to not require collateral or good credit because all group members want the opportunity to borrow.
In Rio de Janeiro, the microfinancial services industry continues to lack the proper operational scale. This, however, does not mean that microfinance is completely unavailable. There exist a select few organizations that supply these services in Rio. These include Vivacred, Banco Itaú, Santander, Federal bank Caixa Econômica, and Tribanco. As a whole, unfortunately, these organizations determine credit worthiness for loans instead of employing solidarity lending. Nevertheless, they continue to operate with acceptable results.
Founded by the NGO Viva Rio in 1997, VivaCred aims to promote economic development and social mobility by offering credit to low income communities. One of few Brazilian microlending agencies that employ solidarity lending, and now supported by Banco do Nordeste and the National Economic Development Bank, VivaCred offers four distinct financial products: a solidarity loan of between R$100 and R$1100 for community banks, or R$100 and R$2000 for solidarity lending groups (3-10 people), intended for basic materials/goods and equipment acquisition; an individual loan between R$300 and R$8000 for groups between 15 and 30 people, intended for capital investments (i.e. machines, equipment, etc.); and a complementary loan of between R$2100 and R$15,000 for community banks or solidarity lending groups, intended for basic materials/goods acquisition. They also offer life insurance with a premium of R$25 monthly; and security of R$3000, with R$840 for funeral assistance.
Banco Itaú’s microfinance department offers microloans to microentrepreneurs in both the formal and informal sector, with the goal of offering affordable loans to spur business growth. Itaú provides loans to the self-employed, owners of small formal businesses, and owners of small informal businesses, offering credit to “develop your productive activity for a minimum of one year. It can be used to buy merchandise, replenish stock, buy machinery and expand a workplace.” To further encourage business growth, interest rates can be lowered for strong business performance. Loans range in value from R$400 to R$5000 for a first loan and then increase to between R$400 and R$14,200.
Santander Microcrédito was launched by Santander Bank in 2002 and offers “credit and financial orientation to entrepreneurs from low-income regions, and thus supporting the success of their business and helping them change their reality and community.” Santander is currently approaching microlending with a more personal touch. The bank employs agents in low-income communities to help provide customer service. As members of the communities, they have a much greater understanding of its needs. With loans ranging from R$500 to R$15,000, and R$1.5 billion already lent to 250,000 entrepreneurs, Santander Microcrédito is the largest private microfinance lender.
Microcrédito Crescer Caixa is the federal government’s microfinance service. Lenders are offered some of the best interest rates, and Crescer officials routinely visit customers’ businesses to address their needs. Loans rate in value from R$300 to R$15,000, with the first loan being up to R$2000. Credit is determined on a per case basis by ability to pay and credit history.
Tribanco was founded in 1990, and serves the retail sector with practical financial products. Part of the Grupo Martins, the bank focuses on lending to retail businesses. While it offers affordable loans, it also provides the Tricard, a way of encouraging credit card payment methods in businesses, and Tribanco Seguro, which sells insurance. Loans are determined by credit, which Tribanco evaluates before offering a product.
Analyzing these institutions, it is clear that microfinance is lacking in Rio and not for a lack of demand. The fact is that as investment opportunities, the wealthy (the lenders) still view the poor as risky. Furthermore, there is more than enough profit to be made for bankers without investing in the favelas, while dodging the “turmoil” inside these communities.
This does not, however, imply that microfinance cannot work — globally it has a 97% payback rate. It simply means that attention must be paid to the communities, and here, in Rio, that can be the hardest part, with the conditioning of a greatly unequal society playing a part in the hesitancy of elites to fund the poor.
With the respect and attention of Brazil’s financial institutions, community members would at least have a choice. Microfinance offers business owners the chance to expand their business in the face of invading corporations. By protecting the favela economy, which is the ultimate result of empowerment through microlending, growth will be more easily and organically fostered, while generating postitive externalities such as voice for the community, and the economic leverage to back it up.