A BRAZILIAN development bank’s innovative credit card, which has caught the eye of everyone from Singapore to South Africa’s Department of Trade and Industry, could help boost funding to small businesses, while promoting local industrialisation.
Banco Nacional de Desenvolvimento Economico e Social (BNDES) expects to lend out R$4.2 billion (R17.5bn) to small businesses this year through Cartão BNDES, which creates allows small enterprises to source goods and services from pre-approved suppliers
Disbursements through the card have grown from R$1.2 million in 2003 when Cartão BNDES was launched, to R$2.46bn last year, and as of August a total of R$12.1bn in credit had been advanced through the card.
The idea of the card, which combines the concept of a credit card with that of an e-commerce platform, is to simplify the red tape associated with bank loans.
To access finance for the goods listed by suppliers on Cartão BNDES’s website business owners approach one of the scheme’s five participating banks which BNDES advances finance to.
The application process through banks typically takes about 20 days, according to BNDES.
The card also promotes local production as BNDES vets suppliers and requires that products have a minimum of 60% local content to ensure that the domestic economy benefits.
If a supplier wants to make an imported product available on the card’s website, they are required to prove to the bank that no similar product exists on the local market.
Ricardo Albano Dias Rodrigues, the manager of the department of internet operations at BNDES said the card’s website currently lists 303 000 small, medium and micro enterprises as buyers.
To qualify as a buyer a business must have an annual turnover not exceeding R$90m.
Rodrigues said 88.3% of buyers were micro enterprises (those with an annual turnover of below R$2.4m), 9.9% small enterprises (with a turnover between R$2.4m and R$16m) and 1.8% were medium-sized firms (with a turnover between R$16m and R$90m).
The site also contains 23 000 suppliers – 12 000 of these being manufacturers and 11 000 distributors.
A total of 135 000 goods and services are listed on the card’s website, including machinery, construction materials and raw materials for production, while some suppliers offer financial services, design and prototyping services and technology transfers.
Last month BNDES began offering professional qualifications such as language and tourism courses through the card’s website.
Rodrigues said business owners can buy goods of up to R$1m at a time, but can arrange with their own bank to finance any shortfall, if need be.
Purchases through the website are limited to a minimum of three and a maximum of 48 installments and an interest rate of 0.97% per month is currently charged.
The card’s website allows the entrepreneur to search for the product on the site and buy it there, but Rodrigues pointed out that 99% of buyers prefer to approach the supplier directly. After negotiating for a good deal the supplier is then able to enter the card’s website and put the transaction through, themselves.
The idea for the card said Rodrigues, who currently oversees a team of 25 – with 10 staff designated to analysing suppliers – came from a retired employee of BNDES and a present employee of the development bank.
It was not difficult to source suppliers as the development bank drew most of the initial batch for the card, from those that were already registered with another of its funds, he said.
But one of the challenges the development bank did face when putting the card into the market was to get business owners to feel comfortable about the product.
To counter this the bank ran workshops and seminars as well as a television campaign to market the card.
Four of the five participating banks are state banks and a key factor that drives the banks participation in the scheme is that by law public banks are mandated by article 58 in Lei Geral, to report weekly to Brazil’s central bank on the number of loans they grant to small businesses as well as the conditions of accessing the loans.
Rodrigues said banks were drawn to use the card as it offered clients access to a large number of clients, assured their loyalty and offered attractive terms to business owners.
He said while participating banks also benefited from the earnings on the interest rate charged to business owners, they could also gain from banking some of the suppliers registered with the card.
Luiz Sakuda, professor of entrepreneurship and innovation at FEI university, Sao Paulo believes that as Cartao BNDES offers pre-approved credit, the card is a good way to bring down the amount of red tape entrepreneurs face when trying to access finance. The concept he said was a good one, as BNDES screens both buyers and suppliers.
Commenting on the innovative card, the Department of Trade and Industry’s acting deputy director-general of enterprise development, Sipho Zikode, said he believed the card could be a useful financial instrument to help small enterprises to fund such things as working capital and some overheads.
But he said there would be challenges to carry out the card in rural areas where the majority of small and micro enterprises were informal and lacked banking facilities, however he added that such a card could work well in urban areas.
A further challenge would be that of creating awareness around the card, as the low literacy levels and the lack of record keeping among many business owners, would be stumbling blocks.
It would also be a challenge to get the banks to enter the sector, particularly on how to lower the systemic risks the banks would face lending to the sector.
Zikode said there was a real need for a public/private partnership to look at developing a small business bank which would operate on a different set of rules and requirements.
“To expect traditional banks to lower their requirements and standards could be a huge challenge,” he said.
This article appeared in Business Day on 14 September 2010. The writer visited Brazil during August 2010. This articles will form part of a report funded by Trade and Industrial Policy Research (TIPS) on lessons South Africa can learn from India and Brazil, in boosting small business support.
Stephen Timm is a