Microcredit in Brazil:
Origins and Current Situation

Microcredit in Brazil is not a recent activity. The first initiatives in the field date
back to 1973, preceding the foundation of the Grameen Bank in Bangladesh,
which is recognized worldwide as a ground-breaking microcredit experience.
However, contrary to what happened in Bangladesh and other parts of the world,
the Brazilian microcredit activity never reached a significant scale. From its
origins to the late 1990s, the activity was performed by a very limited number of
NGOs, and never became a matter of public policy. Although some microcredit
initiatives in Brazil have been successful on an individual scale, in practice the
aggregate industry size has remained insignificant, or “almost inexistent” (Barone
et al 2002: 8).
Only in recent years has the Brazilian microcredit industry received a more
sizeable impulse. This is due to a series of governmental measures aimed at
adjusting the activity’s legal environment. This set of regulations was labelled
“PNMPO – Programa Nacional de Microcrédito Produtivo e Orientado”
(National Program for Oriented and Productive Microcredit), and came as a result
of a series of studies undertaken by the Brazilian government between 1995 and
1999 in order to create microcredit incentives and to attract new players to the
market (Soares and Melo-Sobrinho 2007). The impacts of this policy on industry
structure were noteworthy: in a short period of time, many new suppliers entered
the market, including not only traditional non-profit organizations, but also a
variety of for-profit businesses, such as specialized microcredit societies (SCMs –
Sociedades de Crédito ao Microempreendedor) and commercial banks.
Despite these changes, microcredit activity in Brazil has not yet achieved
significant growth. Estimates are that fewer than 200,000 low-income Brazilian
microentrepreneurs have access to microcredit loans, out of a total of 8 million
eligible clients. The microcredit penetration rate (ratio between the actual and
potential number of clients) remains steady at approximately 2%, ranging among
the lowest in the world (Christen 2001; Nichter et al 2002; Monzoni-Neto 2006).
Some intrinsic factors of the Brazilian economy seem to create obstacles to more
effective growth of the microcredit industry. These include the continental
dimensions of the country and the heterogeneous distribution of its population,
raising the costs of traditional microcredit operations (Diniz 2007). Additionally,
the fact that Brazil has highly developed financial markets in comparison to many
other developing countries represents an obstacle to the allocation of private local
capital to microcredit, given the existence of a variety of other, often more
profitable and easily available, investment options (Christen 2001). Finally, as
pointed out by Nichter et al (2002) and Diniz (2007), the lack of previous,
successful microcredit experiences and methodologies that could exert a
“demonstration effect” and encourage new ventures, also plays a role in limiting