Brazil has announced new rules to expand payroll-deductible loans for private-sector workers, enabling access to cheaper credit via a digital work card app. President Lula emphasized these loans could help reduce interest rates significantly, countering central bank efforts to manage inflation. The program aims to benefit millions of formal workers and reduce excessive debt through lower-cost refinancing options, with significant loan generation projected.
Brazil has introduced new regulations to broaden access to payroll-deductible loans for private-sector employees via the digital work card app, enabling them to obtain more affordable credit. This initiative undertaken by President Luiz Inacio Lula da Silva aims to alleviate the impact of high interest rates imposed by the central bank meant to temper economic activity amid his declining popularity in recent opinion polls.
Lula described this enhanced credit line as “a revolution” while advising against any excessive spending behavior. Finance Minister Fernando Haddad pointed out that private-sector workers face interest rates as high as 5% monthly on unsecured loans. The new system is expected to significantly reduce this burden by potentially halving the interest rates.
The former payroll-deductible loan system was limited as it relied on individual agreements between companies and banks. With the new rules, all private-sector employees, including those in domestic and rural roles, will have direct access to the program. Estimates from Febraban suggest that this change could yield approximately 120 billion reais ($20.6 billion) in loans over four years, benefiting around 19 million people from a workforce of 47 million. Currently, the existing loan operations amount to 40.4 billion reais.
Marcos Pinto, secretary for economic reforms at the Finance Ministry, mentioned that adoption of this new system will be gradual, emphasizing no immediate threat to the central bank’s anti-inflation strategies. Scheduled to launch on March 21, the initiative is designed to help reduce high levels of indebtedness by providing cheaper credit options for refinancing expensive existing loans.
Workers will utilize the digital work card app, linked with their employment records, to directly request loans from participating banks. Offers will be made within a 24-hour period, with transactions completed through the financial institution’s platform. Loan repayments will be conveniently deducted from paychecks via the eSocial digital system.
Additionally, collateral options for loans include as much as 10% of the balance from the FGTS severance fund or the total amount related to any termination penalty due to dismissal. Banco do Brasil, Brazil’s state lender, aims to spearhead this new offering, asserting that it will be accessible through the bank’s own channels by April’s end. Tarciana Medeiros, CEO of Banco do Brasil, underlined that the loans would adhere to sound credit policies while balancing risk and return conditions for clients.
Brazil’s new payroll-deductible loan regulations aim to offer more affordable credit to private-sector workers while addressing rising economic pressures from interest rates. This initiative not only expands access to loans for many employees but also focuses on reducing excessive debt burdens. The government anticipates significant loan generation and economic stimulation with the gradual adoption of this new system, highlighting efforts to improve financial stability for workers.
Original Source: www.marketscreener.com
