RIO DE JANEIRO, Brazil – The recent boom in the Brazilian economy has unveiled a new market for banks: slums.
It’s estimated 50 million of the 84.4 million Brazilians forming the so-called economically active population (working force) don’t have a bank account.
But banks such as Bradesco and Santander see those living in low-income neighborhoods as potential clients, having established branches in the slums of Rio de Janeiro and São Paulo to be closer to their new and future account holders.
Bradesco went first, opening a branch in Rocinha, Rio’s largest slum, in 2007.
Last year, Bradesco opened another one in Higienópolis, one of the largest slums in the city of São Paulo. Later this year, it will open four more branches in slums of Rio and São Paulo.
Bradesco and Santander say they opened the branches without consulting with any narcotics traffickers.
The expansion of the banking services’ net to include those in lower income communities is part of a ‘bancarization,’ which gives more Brazilians access to financial institutions.
Since 2000, Bradesco has established banking correspondents in 6,200 branches of Correios (the state-owned national postal service) and 25,000 commercial businesses countrywide.
Banking correspondents offer some bank services, such as payment of bills, for those living far from big urban centers or in areas with no bank branches, which is often the case in slums.
Odair Afonso Rebelato, Bradesco’s executive-director, says 93% of account holders served by the alternative net and the branch in Rocinha have a monthly income of no more than R$1,500 (US$882) and, in general, they are eager for loans.
As one of the banks’ main sources of revenues is the granting of credit, the high number of approvals for financing ends up counterbalancing the reduced value of the loans offered to this population, as well as the risk of default by borrowers, Rebelato says.
The default rate for low-income customers is 10%, well above the national average of 6%, according to Rebelato.
Clients seek loans to invest in their own businesses
Maria da Silva, a 32-year-old from the state of Ceará, is one of Bradesco’s newer clients. In late September, she opened an account at the branch in Rocinha, where she has lived for the past 11 months, in an attempt to be approved for another loan.
Maria makes about R$1,500 (US$882) per month selling the so-called ‘quentinhas’ (takeaway food packed in aluminum paper boxes). She already has borrowed R$6,000 (US$3,529.38) from Banco do Brasil to purchase a motorcycle and wants to buy a van for her husband Marcos.
“For two years, he’s been working as the driver of a van that’s not his own,” she says. “We’re going to try to take on our own business.”
To attract clients like Maria, Bradesco doesn’t require proof of income for opening a bank account. All the customer needs is an identification card, an Individual Taxpayer Registry (CPF) and proof of address.
The bank also makes the collection of tariffs for services such as statements and withdrawals easier for these clients. The minimum monthly fee is R$9 (US$5.29), but the amount may be converted into credit for prepaid cell phones.
“Every client is profitable,” Rebelato says. “We just need to find the best way of serving them.”
At Santander, the requirements for opening an account also have been simplified during the past few months, with the aim of increasing the number of clients. The minimum monthly income fell from R$1,000 (US$588.23) to R$600 (US$352.94).
The initiative resulted in 2.5 million of the 10 million clients the Spanish bank has in Brazil being among those who earn R$600 per month.
“Carioca Gaza Strip” home to a bank
In May, Santander took another step to provide banking services to low-income clients by opening a branch in Complexo do Alemão, a slum so dangerous in Rio it’s called the Carioca Gaza Strip.
Santander’s first branch in a low-income community was the result of a partnership with NGO AfroReggae, which promotes a series of social actions in the city and helped the bank to choose its location.
One of the differential aspects of Santander’s branch in Complexo do Alemão is a specific room for receiving clients interested in microcredit (microloans) – a market niche in which Santander has invested due to the increase of the purchasing power of the low-income population in past years.
The national minimum wage more than doubled (jumping from R$200 in 2002 to R$510 in 2010), the unemployment rate fell to historical levels and inflation is under control.
In 2009, the so-called class C, whose monthly income is between R$854 and R$1,126, already represented 50.5% of Brazilians, according to a study by Getúlio Vargas Foundation’s Center for Social Policy released in September.
Santander expects to release R$280 million (US$164.70 million) this year to micro-entrepreneurs. The amount tops the amount released from 2002 to 2009: R$227 million (US$133.52 million).
The banks also are improving the local job market, as all eight of Santander’s employees in Complexo do Alemão are from communities in neighboring areas.
Rise in formal jobs leading to more bank accounts
Many of the slums’ residents became checking account holders because they needed an account to receive their salaries from their formal jobs.
Daniele Pinheiro, 34, is among Bradesco’s newest clients. She was hired a few months ago by the City Hall to work in a daycare center in Rocinha, where she has lived since birth. She previously had only a savings account at Caixa Economica Federal, a state-owned bank.
With two bank accounts, she now has five credit and debit cards. The others are used by her relatives and friends who don’t have a formal job, so they can’t prove their income needed to open an account in many of the country’s private banks.
“There’s always someone who has a bad credit record or is unemployed and asks me for help,” she says.
Low-income customers also start changing their spending pattern when they open a bank account.
Rebelato says 83% of Bradesco’s low-income clients already have made deposits in savings accounts – a stark change of behavior for people who had kept their money underneath their mattresses.
“They began to organize the family budget and acquired money-saving habits,” Rebelato says. “This is very positive, as they began to plan their purchases and expenses and can have a better life by doing so.”
Raelson Cunha, a 27-year-old cook who lives in Rocinha, has learned to have better control over his expenses. With his R$1,200 (US$705.88) monthly wage, he’s trying to save money to help his wife, Aline, 25, to open a Havaianas sandals store.
“I opened the account to receive my salary,” he says. “Before that, I used to keep what I received in my pocket and spent everything. Now I come to the end of the month without running into debt.”