Microfinance Faces Debt Test in Brazil
Monday, July 30, 2007
In the shantytowns that surround Brazil’s cities, plenty of peddlers and vendors say they could use a small loan.
The trouble for microfinance lenders — who believe loans as small as $50 can help poor entrepreneurs grow business and climb out of poverty — is that many would-be borrowers in South America’s largest economy are already loaded with debt. BRASILIA (Reuters) – In the shantytowns that surround Brazil’s cities, plenty of peddlers and vendors say they could use a small loan.
The trouble for microfinance lenders — who believe loans as small as $50 can help poor entrepreneurs grow business and climb out of poverty — is that many would-be borrowers in South America’s largest economy are already loaded with debt.
With some of the world’s highest interest rates, Brazil is fertile ground for aggressive commercial lending. And after decades of hyperinflation, rich and poor have learned that it’s smarter to spend than invest.
“Brazil is different. We don’t have a culture of saving,” said Stelio Gama Lyra, who heads CrediAmigo, one of the few microfinance success stories in the country. “My son doesn’t know what it means to save 10 reais ($5).”
Brazil seems like the perfect place for microfinance, a development strategy that emerged in the 1970s.
Some 44 million people — one in four — live in poverty and city streets bustle with makeshift businesses. Coconut sellers, seamstresses and craftsmen all hawk goods to survive.
But microfinance efforts have struggled.
“Everybody is looking at Brazil with frustration. It has no providers of scale but a huge potential population,” said Andre Laude, microfinance coordinator for Latin America at the World Bank’s private development arm, the IFC.
As microfinance rides a new wave of global attention and more private capital flows into the segment, lenders may want to consider what went wrong in Brazil.
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