Currently, only one third of Brazilians have access to a bank account. Identification procedures for opening an account are a major barrier. Almost 30 percent of municipalities, over 1,600, lack basic banking facilities, and another 1,400 have only one bank branch. Public policy to expand access to financial services relies heavily on large public banks. A World Bank report asserted that given their non-depositary status, the regulatory burden on micro-finance institutions is too high, and that credit cooperatives suffer from high leverage and liquidity constraints. The same report adds that very expensive public financing often fails to reach target groups.

Recent Legislative Responses

• Four community reinvestment laws were enacted in 2003. The first granted the National Monetary Board the authority to regulate microfinance operations operated by financial institutions. These institutions include commercial banks, financial services firms and credit cooperatives. The second piece required all financial institutions to set aside 2 percent of all demand deposits for microfinance operations. The third measure provides access to low-cost bank accounts, and the fourth expands the eligibility of credit cooperative membership.
  
  
• The 2 percent set aside measure is expected to generate R$1.1 billion, or US $330 million annually. These funds are targeted specifically to small business, though not necessarily businesses owned by low-income people. Terms and conditions include 2 percent interest, with a minimum principal of R$600, and a minimum term of 120 days. While five financial institutions have implemented this requirement, we are currently unaware of any regulatory enforcement procedures for banks that are not in compliance.
  
  
• The current president, Luiz Ińacio da Silva (Lula) has appointed supporters of microfinance and cooperative credit to key government positions, enabling the passage of this legislation. Many banking industry leaders criticize the law as credit allocation which they regard as unprofitable. They also regard subsidized interest rates as impractical in the long run.
  
  
• Banks must now offer simplified, low-cost bank accounts to low-income customers. Accounts would do not carry maintenance fees unless the accountholder exceed four deposits or withdrawals each month. Low-income status is determined by the account balance, not by annual income, so and accountholders cannot deposit more than R$1,000 in any given month.
  
  
• Credit Cooperative membership has been extended to any municipality with less than 100,000 residents, or approximately 95 percent of the countries municipalities. (Most of the population, however, lives in large urban areas.) Asset requirements are set at R$6 million for credit cooperatives in metropolitan areas, and R$3 million in rural areas. Specially designated high need areas may have lower asset requirements. We are currently unaware of the regulatory structure regarding credit cooperatives.
  
  
• There is currently no enacted or pending legislation that requires the disclosure or monitoring of a banks lending performance, making enforcement difficult.

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