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    This blog highlights effective ideas in the fight against poverty and exclusion, and analyzes the impact of development projects in Latin America and the Caribbean.
  • Tackle the Funding Gap: Expanding Access to Credit for Brazilian Microentrepreneurs



    By Helio Bertachini

    Ms. Terezinha runs her own small business selling churrasquinho, a type of steak stick, in Pindamonhangaba, a city in the countryside of São Paulo State, Brazil.

    Terezinha needs credit to grow her business, but until recently her access to credit was very limited.

    access to credit Brazil

    Street market in Brazil. Image: Los viajes del Cangrejo. Creative Commons License.

    Throughout Latin America and the Caribbean, millions of people like Terezinha with small and informal businesses are unable to access credit.

    These entrepreneurs—most of them part of their countries’ poorest population—often resort to inconvenient and burdensome options to fund their businesses.

    These include turning to informal lenders, expensive credit cards, and overdraft checks–all with exorbitant interest rates. Meanwhile, their lack of working capital causes logistical challenges, forcing them to manage small inventories and make multiple purchases in short time periods.

    To tackle this funding gap in Brazil, the IDB provided a US$10 million loan in 2011 to Tenda Atacado (a retail and wholesale distributor), to expand its credit program, known as VoxCred.

    To complement the loan, the IDB-managed Korea Poverty Reduction Fund provided a US$270,000 grant for a training program to strengthen the ability of microentrepreneurs to manage their finances.

    The credit program has since benefited more than 190,000 microentrepreneurs, including Terezinha.

    Tenda’s current average credit limit is R$517 (around US$146), but the average loan is less than half that. The repayment rate is strong, with nonperforming loans accounting for 5.67 percent of the portfolio

    The program is mitigating the problems faced by Brazil’s microentrepreneurs.

    For Tenda Atacado, expanding access to credit for its clients and strengthening their financial skills is a win-win strategy.

    For the clients, the expanded access to credit allows needed investments to grow their businesses. Tenda gains by attracting and retaining new clients, increasing sales, and making its credit portfolio more profitable.

    As a company’s manager said: “Tenda’s objective with this credit program is not to sell to clients, but to create shared value with the people who walk into our stores.”

    This story is one of the impact evaluations included in the Development Effectiveness Overview, an annual publication that highlights the lessons learned from IDB projects and evaluations.

    About the author:

    Helio Bertachini is a management and strategy consultant in the Development Effectiveness Division of the Inter-American Investment Corporation.

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