Stability brings credit to Brazil's working class. Klaser the country learnt how to live with high interest rates.
Stability brings credit to Brazil's working class
June 15, 2006
By Terry Wade
SAO PAULO, Brazil (Reuters) - Like thousands of working-class Brazilians, Henrique do Carmo, a 20-year-old bill collector, used to spend hours each day commuting by bus in this sprawling city of nearly 20 million.
It was costly, slow and uncomfortable.
Now he zips across town on a new Honda motorcycle, enjoying the wheels that have opened up a world of freedom and dating.
Thanks to economic stability, a 12-year low for interest rates on personal loans and new banking rules that broaden the supply of credit, millions of people in Latin America's largest country are becoming first-time borrowers.
In turn, they are supporting a structural shift in Brazil's economy by sustaining manufacturers of expensive, long-lasting goods like motorcycles and refrigerators.
"Credit has become more accessible," Carmo said.
Interest rates in Brazil, where the benchmark lending rate is 15.25 percent a year, are still among the highest in the world and the typical personal loan carries an interest rate of 57.8 percent a year, according to the central bank.
But for many workers interest rates on personal loans have fallen enough to make monthly payments affordable.
Carmo will pay 265 reais ($115) a month for three years to buy his motorcycle. The payments will total 9,450 reais, nearly double the listed price of the motorcycle.
In many countries, borrowers would refuse such interest rates and Carmo's loan might violate usury laws.
But his purchase of the small 125cc motorcycle made financial sense. He used to spend 180 reais a month, or six reais a day, on bus fares.
For an extra 85 reais a month, he bought a motorcycle that halved the time he spent commuting and allowed him to take joy rides in his spare time.
Banks allow people like Carmo to borrow as much as they want so long as their monthly payment does not exceed a third of monthly income.
"Ninety percent of my sales today are done on credit and half our clients are buying to avoid traffic and bus fares," said Carlos Cesar Daniel, sales manager at a Honda dealership in Sao Paulo's Santo Amaro neighborhood.
Nationwide, motorcycle sales rose 27.9 percent in May from the same month last year, according to Brazil's association of motorbike manufacturers.
Stronger sales buoyed motorcycle production, which rose 29.3 percent in May from a year earlier. Brazilians are forecast to buy a record 1.34 million motorcycles this year.
The volume of personal loans grew 33 percent in the 12 months through April to 206.5 billion reais, central bank data show.
Brazil has lots of room for credit expansion. Its ratio of credit to gross domestic product is only 32 percent, two or three times less than many developed economies.
Importantly, in the past year, the average interest rate has fallen nearly twice as fast as the central bank's benchmark lending rate because of heightened competition among lenders and a more efficient credit system.
Additional loan growth is expected as banks expand their consumer finance units and stronger economic fundamentals encourage more and cheaper credit.
"People now have both the desire to buy and the ability to pay," said Honda's Daniel. |
