Access to Financial Services in Brazil

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DIRECTIONSDIRECTIONS ININ DEVELOPMENTDEVELOPMENT Access to Financial Public Disclosure Authorized Services in Brazil A STUDY LED BY ANJALI KUMAR Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized DIRECTIONS IN DEVELOPMENT Access to Financial Services in Brazil DIRECTIONS IN DEVELOPMENT Access to Financial Services in Brazil A study led by Anjali Kumar THE WORLD BANK Washington, D.C. © 2005 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved 1 2 3 4 07 06 05 04 The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; www. copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington DC 20433, USA; fax: 202-522-2422, e-mail: [email protected]. Library of Congress Cataloging-in-Publication Data Kumar, Anjali. Access to financial services in Brazil / Anjali Kumar. p. cm. — (Directions in development) Includes bibliographical references and index. ISBN 0-8213-5716-6 1. Finance—Brazil. 2. Financial institutions—Brazil. I. Title. II. Directions in development (Washington, D.C.) HG185.B7K85 2004 332.1’7’0981—dc22 2004045528 Contents Foreword xiii Acknowledgments xv Executive Summary xix Abbreviations lix Currency Equivalents lxxii 1. Assessing Access 1 Growth, Poverty Reduction, and Access to Financial Services 1 Basic Supply-Side Measures of Financial Services Offered in Brazil 11 Demand-Side Measures of Access: An Enterprise Survey 33 Demand-Side Measures of Access: A Survey of Urban Individuals 33 Analysis of Survey Results: What Factors Are Associated with Access? 45 An Econometric Investigation of Determinants of Access 60 Summary of Findings and Policy Implications 64 Annex 1.1 Financial Markets and Welfare-Enhancement: Microeconomic Aspects 69 Annex 1.2 Technical Note on Estimation: Urban Financial Survey 72 2. Expanding Microfinance 77 Microcredit, Access, and Poverty: A New Paradigm? 77 Microfinance in Brazil: Evolution and Status 84 Microfinance in Brazil: Constraints and Challenges 115 Microfinance Regulation and Supervision: Future Policy Options 126 v VI ACCESS TO FINANCIAL SERVICES IN BRAZIL The Credit Cooperative Movement and Its Contributions to Access 132 Legal, Regulatory, and Supervisory Framework for Credit Cooperatives 149 Annex 2.1 Microfinance and Technology 156 3. Downscaling Private Banks 167 Deposit Services: Small Clients and Special Savings 171 Credit Services: Provision of Small Loans 186 Entry Requirements, Prices, and Transaction Costs 190 Delivery Channels: Branches, ATMs, and Correspondent Banking 201 New Technologies: Use of the Internet and Phone Banking 210 Downscaling of Banks Elsewhere: What Can Banks Do? 220 Annex 3.1 Bank Downscaling: One Bank’s Viewpoint 228 4. Partnering Nonbanks 241 Introduction 241 Factoring 247 Leasing 263 Consumer Finance for Individuals and Trade Finance for Enterprises 273 5. Channeling Rural Finance 277 Specialized Finance and Directed Credit in Brazil 277 Overview of Rural Finance in Brazil 281 Analysis of the Present System of Agricultural Credit 301 Designing Rural Financial Systems: Principles and Experience 311 Conclusions and Recommendations 323 Annex 5.1 The Subsidy Dependence Index: Rationale and Calculation 326 Annex 5.2 Old and New Approaches to Rural Finance: Goals and Principles 329 Annex 5.3 The New Approach to Rural Finance: Indonesia’s BRI–Unit Desas 334 6. Installing Institutional Infrastructure 337 Creditor Rights, Security Interests, and Access to Credit 339 Security Interests 350 Credit Information and Credit Reporting 362 CONTENTS VII 7. Enlisting the Government 381 Government Policy and Access: Macro- and Regulatory Environment 384 Proactive Government Policies: Supportive Microeconomic Measures 391 Conclusion 413 Appendix: Statistical Tables 415 Endnotes 529 Bibliography 557 List of Institutions and Web Addresses 589 Index 593 Figures 1.1 Growth in Numbers of Financial Institutions, 1993–2002 13 1.2 Evolution of Financial Service Outlets in Brazil, 1994–2002 16 1.3 Ownership of Bank Service Points in Brazil 17 1.4 Branch Density by State in Brazil 20 1.5 Municipalities with No Services 24 1.6 Brazil and Other Countries: Population Served per Bank Branch 27 1.7 Deposit and Savings Behavior: Survey of Urban Individuals 40 1.8 Role of Location in Financial Access 48 1.9 The Role of Income in Different Measures of Financial Access 58 2.1 Growth of Loan Portfolio and Client Base of Main Microfinance Providers in Brazil 90 2.2 Growth of the Grameen Bank in Bangladesh, Self-Help Groups in India, and Top 10 MFIs in Bolivia 107 2.3 Comparison of Interest Rates Charged on Loans with Other Institutions in Latin America 113 2.4 Capital, Deposits, and Loans of the SICOOB and SICREDI Cooperative Systems, 1998–2001 134 2.5 Cooperatives in Brazil, by Type of Cooperative, 2001 136 2.6 Evolution of Profits and Equity for the SICOOB Cooperative System 148 3.1 Interest Rates for Special Savings Deposits and Term Deposits, 1999–2002 172 3.2 Structure of Aggregate Deposits, December 2001 174 VIII ACCESS TO FINANCIAL SERVICES IN BRAZIL 3.3 Structure of Deposits below R$5,000 by Type, Institution, Numbers of Clients, and Value, December 2001 177 3.4 Structure of Sight and Special Savings Deposits from R$1,000 to R$5,000, December 2001 180 3.5 Credit Operations with Nonearmarked Funds, July 2000 to December 2002 198 3.6 Regional Distribution of ATMs Relative to Population and Income in Brazil 208 3.7 Bank Transactions and Cellular Phone Costs in Brazil and Other Countries 212 3.8 Teledensity and Gross Domestic Product per Capita and Telecommunications in Brazil and Other Countries 213 3.9 Main Telephone Line, Cellular, and Internet Penetration in Brazil and Other Countries 217 3.10 Online Internet Banking in Brazil and Asia 218 3.11 Internet Use and Online Banking in Brazil and the United States 219 4.1 Loans to Companies and Individuals in Brazil, by Instrument 243 4.2 Evolution of the Portfolio of Factoring Companies Associated with ANFAC 250 4.3 Factoring Companies’ Portfolios, by Sector, 2000–01 251 4.4 Evolution of Purchase Factor, Interest Rates, and Spreads in Brazil, July 1994 to February 2003 253 4.5 Evolution of the Leasing Portfolio and Operations in Brazil, by Type of Asset, 1990 to February 2003 266 4.6 Types of Indexation in Leasing Contracts in Brazil, 1998 to February 2003 267 4.7 Evolution of Leasing Operations, by Sector, 1993 to February 2003 268 4.8 Finance Companies’ Role in Consumer Credit in Brazil 274 5.1 Trends and Composition of Directed Credit, 2000–02 279 5.2 Nominal and Real Interest Rates in Rural Credit in Brazil, 1995–2001 282 5.3 Credit Flows to Agriculture: Reductions with Fluctuation, 1969–2002 283 5.4 Flow of Funds under the National Rural Credit System 286 5.5 Sources of Funds for Agricultural Credit: Increased Obligatory Lending 288 5.6 Rural Credit from PRONAF 293 5.7 Agricultural Production and Formal Agricultural Credit 302 5.8 Correlation of Volume of Credit and Land Price Value 304 5.9 Distribution of Agricultural Credit by Contract Size 305 CONTENTS IX 5.10 Narrowing Spread between the SELIC Rate and the Controlled Agricultural Interest Rate 309 5.11 Integrated Credit and Insurance Products: Suggestions for Efficiency Gains 320 6.1 Spreads in Bank Intermediation in Brazil 338 6.2 Registration Costs of Mortgages in the State of São Paulo 356 6.3 Use of Credit Registries by Different Entities 363 6.4 International Examples of Credit Registry Information 370 7.1 Ratios of Credit to GDP and Debt to GDP over Time in Brazil, January 1995 to March 2003 386 7.2 Shares of Securities in Bank Assets (December 1999 to December 2002) and Money Supply in Brazil (July 1994 to June 2003) 387 7.3 Trends in Spreads and Reserve Requirements in Brazil, January 1995 to March 2003 388 Tables 1.1 Income Distribution: An International Comparison 2 1.2 Depth of Financial Markets: Brazil and Other Emerging Economies, 1999/2000 4 1.3 Branch Density across Brazilian Regions 19 1.4 Provision of Bank Services across Regions 25 1.5 Provision of Bank Services across Municipalities, 1996 26 1.6 Public and Private Provision of Bank Services across Regions 26 1.7 Bank Branch Density: An International Comparison 29 1.8 What Explains Bank Branch Services across Municipalities? 29 1.9 What Explains Public versus Private Bank Branch Services across Municipalities
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