Brazil has announced new regulations for payroll-deductible loans, expanding access to private-sector workers through a digital platform. This initiative aims to reduce borrowing costs and stimulate credit access amidst rising interest rates. The finance minister noted a potential halving of interest rates, while the program seeks to benefit millions of workers over the next four years.
On March 12, Brazil introduced new regulations to enhance payroll-deductible loans available to private-sector workers via the digital work card app, facilitating access to lower-cost credit options. This initiative, spearheaded by President Luiz Inacio Lula da Silva, emerges amid declining public approval and contradicts the central bank’s strategy of raising interest rates to temper economic activity.
President Lula described the new credit line as potentially transformative but cautioned against misinterpretation as an endorsement for excessive spending. Finance Minister Fernando Haddad reiterated this concern, noting that interest rates for collateral-free private credit could exceed 5% per month, but the new program could reduce this rate by half.
Previously available only through individualized agreements between companies and banks, this reformed credit option will now be accessible to all private-sector employees, including domestic and rural workers. Estimates suggest that the revamped system could facilitate 120 billion reais ($20.6 billion) in loans over four years, reaching approximately 19 million formal workers out of a 47 million total.
Currently, the existing volume of payroll-deductible loans amounts to 40.4 billion reais. Marcos Pinto, the Finance Ministry’s secretary for economic reforms, noted that the implementation of this new system will be gradual, assuring that it will not disrupt the central bank’s inflation control efforts.
The loan program is set to commence on March 21, focusing on diminishing excessive personal debt by providing cost-effective refinancing options. Workers will utilize the digital work card app to request loans, receiving bank offers within 24 hours, completed through their chosen financial institution’s platform.
Monthly repayments will be automatically deducted from paychecks via the eSocial digital system, which streamlines employer records. Workers may use up to 10% of their FGTS severance fund as collateral or the full termination penalty if dismissed. Banco do Brasil announced its intention to lead this initiative and aims to offer it through their own channels by late April.
The Brazilian government’s recent announcement to broaden payroll-deductible loan access aims to provide cheaper credit options to the workforce, particularly in light of rising interest rates. This program, championed by President Lula, represents a strategic effort to alleviate personal debt burdens while stimulating borrowing. With the potential to impact millions of workers positively, the new rules signify a critical development in the Brazilian financial landscape, ensuring support for private-sector citizens navigating economic challenges.
Original Source: www.marketscreener.com
