The unbanked population of Brazil decreased by 73% during 2020, according to research by Mastercard, with 70% of Brazilians over the age of 15 now holding an account.
The surge in openings has reportedly been driven by the need to receive state-financed Covid-19-relief funding. At the start of the pandemic, the government was faced with the challenge of how to disburse financial relief to a substantial unbanked population. In response, Caixa Econômica Federal (CEF), the largest state-owned bank, released Caixa TEM, a banking app to facilitate easy account openings.
Within 24 hours of its launch, 13 million users were registered. The app uses voice command, colours and pictures to cater to those unable to read or write, and has a low space requirement of just three megabytes for those with budget smartphones. As 68% of Brazilians have a smartphone, this is an attractive option for those who had previously been alienated from the banking system.
The Caixa TEM app is also due to include a loan function, with customers able to borrow between 1000 and 5000 reais ($188–$940) from their phones.
Smallholder farmers are one subset of the unbanked population that may benefit from greater access to financial services via the app. Almost 80% of agricultural establishments in Brazil are small-scale farms, accounting for 23% of total agricultural output value. Yet only 14% of rural credit is directed towards smallholder agriculture, according to the Climate Policy Initiative.
As mandated by law, 35% of bank loans are allocated to the agriculture sector, and the state has established partial credit guarantees to attract commercial bank funding to the sector. Loans, however, are directed towards agrifood conglomerates who farm mostly monocultures, as banks are reluctant to loan to riskier small producers or co-operatives.
Alongside being put off by fees, challenges from informal employment and a mistrust of banks, the shortage of branches in rural areas has been a significant barrier to bank access for farming communities. Since 2016, the three biggest private banks, Banco Bradesco, Banco do Brasil and Itaú Unibanco, have also been steadily closing down branches across their networks. For example, Banco Bradesco reduced its network by 1432 branches in 2020.
In recent years, there has been an influx of private-sector initiatives and new credit programmes from challengers, such as Nubank and Alt.bank, encouraged by low central bank interest rates (making private sector credit competitive) and higher agricultural commodity prices. They have been providing banking services with better accessibility for this community.
Although CEF’s intervention has gone a long way to serve the roughly 100 million citizens that had not previously accessed banking services, there is also clearly still potential for fintechs to make a mark.
