Public and Private Investment in Microfinance: Involving Private Banks

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B of the acronym BRICS, Brazil is known for its economic potential but also for its huge unfair income distribution and social inequality. Microfinance would be one of the most efficient tools for adjustments. The first Brazilian experiment in lending money to micro entrepreneurs was in 1973, an initiative of the NGO Accion International, the Northeast Union Assistance to Small Organizations –   UNO project. Despite this early establishment and of the lack of financial service for the poor, the microcredit sector in Brazil had a limited improvement during the follows years.

However, in July of 2003, only a few months after the former president Lula had gained power, the Brazilian government pushed all commercial banks to investing at least 2% of the bank deposit account for loans designed for the low income population and small entrepreneurs. According to the Central Bank Act n° 3.109, the banks could loan directly or transfer to the microfinance institutions, following the conditions and rules determined by the same law. It was a way of downscaling private banks and to expanding microcredit offer.

This presentation proposes an overview of the Brazilian microfinance sector to investigate if all Public policies and measures to boost credit access to reduce poverty have been efficient. To oblige private banks is a worthy way to increase the financial inclusion? How did and do they react to this?

Public & Private Investment in Microfinance