Brazilian development bank BNDES this week announced that it will make available 20 billion reals ($6.3bn) to banks until August next year, to cover working capital for SMEs.
The new financing line (BNDES Giro) was launched by President Michel Temer on August 23. Traditionally the development bank has not offered working capital in the past.
The launch follows an announcement in June that the development bank - under instructions from Temer - will boost lending to small businesses (see this post), as the country begins emerging from an over two-year long recession.
Under the new financing line, BNDES will make the working capital available through financial intermediaries – such as state banks and some commercial banks.
Using a web portal (BNDES online) business owners will be able to track their application. If all is in order the loan will be paid out into their bank accounts within 24 hours. Currently an application for working capital through BNDES can take up to 60 days, according to Planning Minister Dyogo Oliveira.
The finance will be made available at low interest rates, which because it is lent out at less than the bank lending rate (presently at 9.25%, while BNDES lends it out at 7% through its long-term TJLP rate), amounts to a subsidy, the cost of which is absorbed by the treasury.
The subsidy model is controversial and critics have blamed it for distorting the lending market (see this earlier post).
'200,000 could benefit'
BNDES president Paulo Rabello de Castro (pictured above) said on Wednesday that about 200,000 firms will take up the offer to get credit through the new vehicle – meaning on average each firm will take out on average 100,000 reals in working capital.
He said about 40% of new finance from the banks various existing schemes was directed at small and micro enterprises in the first quarter and the intention is to lift this to 60% within the next 12 months.
Every six months the bank loans about 13 billion to firms with an annual turnover of up to 300 million reals ($95m), he said.
He said while the development bank sees some signs of the economy improving (with the economy having grown by one percent in the first quarter), there are some lines of credit which are still decreasing.
Difficult getting finance
Finance is still tight in Brazil. A survey this week by Brazils’ credit protector (SPC Brasil) and Confederation of Managers (CNDL) revealed that the demand for credit from small businesses fell last month over June.
In all 86% of small and micro firms surveyed had no intention of taking out finance. About a third of business owners said it is difficult to access finance against 25% that said it is easy. Most mentioned excessive bureaucracy at banks and high interest rates as key factors making it difficult to access finance.
The head of Brazil's small business agency Guilherme Afif Domingos in 2015 raged about bank's "pornographic rates" (see this post). While interest rates remain high, the bank lending rate has fallen from a high of 14.25% in October and was cut to 9.25% last month.
Brazil is doing much already to boost finance to small businesses. Earlier this month it launched a new call to finance high-growth tech start-ups under Start-Up Brasil (see this post), while last month the country's exchange commission issued regulations on equity crowdfunding (see here).
Banks can do with cutting more red tape. More alternative financing mechanisms will may mean there may be less need for BNDES and the distorting effect the development agency giant has on the finance market.
Timm is a South African who writes on small business in emerging economies. Follow Small Business Insight on Twitter at @Smallbinsight and on Facebook.
Stephen Timm is a