Brazil’s commercial sector is overwhelmingly populated by small businesses. According to a report by SEBRAE, a small business agency of the Brazilian federal government, microenterprises and small businesses, defined as those with less than $1 million in annual revenues, make up 99 percent of the country’s 7 million commercial ventures.

Small businesses have driven tremendous growth in the Brazilian economy in the 21st century, raising millions of Brazilians out of poverty, but these businesses still face numerous difficulties in their daily operations. For example, credit access in Brazil has historically been expensive and difficult to obtain. This poses a challenge for small businesses and sole proprietors wishing to borrow modest amounts to cover inventory or to invest in new ventures.

Among the 20 largest world economies, Brazil has had the highest interest rates for commercial lending in recent decades, and banking fees are similarly high. Brazil’s financial system is highly concentrated, with a few large banks handling the vast majority of assets and transactions.

In recent years, however, new players have entered the market for consumer and small business finance in Brazil. Financial technology (FinTech) firms are making inroads into the largely untapped market for credit access in Brazil and giving many small businesses in the large South American nation new opportunities for growth. A 2017 report by Goldman Sachs noted that the unusually high-interest rates and bank fees in Brazil increase the incentives for upstart financial companies to compete with large established banks. Because of the unusual concentration of banking in just a few small firms, FinTech stands to have a much larger impact by increasing credit access in Brazil than it does in other nations where the financial system is already more diverse.

By September 2017, Brazil had the largest number of operating FinTech startup companies in Latin America, topping even strong growth in Mexico, the region’s next most populous country. NuBank, Brazil’s most visible new financial technology company, has received more than 10 million applications in the past three years for new credit accounts. NuBank offers small business loans as well as personal credit in Brazil and the firm has recently seen growth as fast as 10 percent per month.

Some of the circumstances fueling these changes have been readily apparent on the streets of Rio de Janeiro and other large Brazilian cities for years. In the busiest urban blocks there, dozens of young people chat with each other using Internet-connected smartphones, and strangers exchanging information for the first time often offer a WhatsApp account or Facebook handle instead of a traditional phone number. FinTech firms are taking advantage of this phenomenon by developing a strong mobile presence and enthusiastically engaging with mobile and internet commerce.

Small enterprise is everywhere in Brazil’s large cities as well. Sidewalk kiosks and small local businesses make up the vast majority of retail establishments on every block of Rio’s densely packed downtown and its historical and beachfront neighborhoods. The scene is similar in Salvador and São Paulo, Brazil’s largest and third-largest cities, respectively.

Small business is an essential element to developing the economic potential of Brazil, the world’s sixth most populous country. Expanding employment and commercial opportunities can raise the standard of living for millions of low-income citizens who have not yet been fully helped by Brazil’s robust economic growth in the past few decades. With millions of Brazilians employed by these ubiquitous small businesses and the access to personal capital expanding at a rapid rate, the FinTech revolution in Latin America’s largest economy promises to be a winning story for economic development and poverty reduction for years to come.

– Paul Robertson

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