FinTechs enter Brazilian Loan Market

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The majority of FinTechs start-ups in Brazil included in the loan market noticed that retail firms are very interested. (Photo: KenResearch)

A loan market in Brazil has been undergoing positive changes since FinTechs companies offered to their customers a convenient solution – to provide loans with decreased interest rates for the retail and mid-sized firms.

Based on customers´ discontent with extremely expensive interest rates proposed by Brazilian conventional banks, the latest news on the FinTechs idea on improving debt market  has been met with an enthusiasm.

“Borrowers in Latin America’s biggest country pay an average 250 percent a year for the riskiest type of unsecured rollover credit, the highest among the world’s 20 major economies”, Reuters reported.

Banco Inter is one of the financial technology companies which plans on providing accounts for retail businesses operated by their current customers. Together with other FinTechs companies, Banco Inter is growing into small firms´ “bridging loans” which offers cheaper rates in preference to the profit it could have earned from the supply contract with large firms.

Biva is the financial technology company which has introduced approximately 59bn DKK from the loan business two years ago. It runs according to “peer-to-peer” models where retail businesses agree with clients on the amount of the loan without any bank involvement.

Jorge Vargas Neto, Biva´s founding partner described: “There’s a lot of room to grow because banks still charge very high rates and availability of credit for small and mid-sized enterprises remains restricted.”

Biva offers rates of between 1.7 percent and 6.3 percent a month to borrowers, and average returns of 22 percent a year to investors, Vargas added.

Biva runs according to “peer-to-peer” models where retail businesses agree with clients on the amount of the loan without any bank involvement.  (Photo: Biva blog)

Peer-to-peer loans

Despite the growing success, Brazil still needs to approve peer-to-peer loans. According to the central bank, the new rules will be applied in a near future to keep an eye on financial technology companies.

A matter of course, FinTechs companies are searching for a consensus as their intention is certainly not to violate any current banking regulations. They are rather approaching various ways to find the solution for loaning money to retail business through specific lenders.

“They use systems similar to a Dutch auction – in which borrowers get incentives to present as many guarantees as possible to get the lowest interest rate”, Reuters reported.

F(x) is the FinTech company which uses algorithms as main tools for investors and loaners. Dan Cohen, founder and partner at F(x) said: “This is a means to try to overcome the inefficiency of the credit system in Brazil, which is most accentuated for small and medium-sized companies.”

This may come into an action when Brazilian banks decrease their financial resources for retail companies due to the challenging country´s economy.

“State-controlled Banco do Brasil SA curbed lending in the segment by almost 30 percent in the 12 months through March, while disbursements at Itaú Unibanco Holding SA for the segment were down almost 10 percent in the same period. Itaú is Brazil’s No.1 bank by assets. Moreover, according to a study released in May by the InterAmerican Development Bank and tech accelerator Finnovista, Brazil is home to 230 of the 703 FinTechs in Latin America, ranging from digital banks to financial education companies”, Reuters reported.

The majority of FinTechs start-ups in Brazil included in the loan market noticed that retail firms are very interested. For instance, FinTech Geru provides loans in a maximum of 100 T.DKK per a customer to invest in the retail business.

Sandro Reiss, the founder of Geru, informed: “We have seen that a large number of our loans go to self-employed people to invest in their own companies.”

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I hold a BA degree in English Linguistics and MA degree in American studies from University of Southern Denmark, Odense. I am passionate about blogging and discussing political and cultural environment in a contemporary society. In particular, I am interested in international relations between USA and the rest of the world.

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