2019 was a year of important changes for the credit market

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December is a month traditionally dedicated to reflection. Looking ahead to 2019 for the credit market, the changes - for the better - are evident.

POSITIVE REGISTRATION

A approval of the new Positive Record law (CP), which came into force in July, reduces defaults and promotes fairer interest rates on credit. The new CP, which automatically includes all individuals and companies, empowers the borrower and strengthens financial education, since the consumer or company becomes better organized to take advantage of the benefits offered by a good credit rating (score).

FINANCIAL EDUCATION

In 2019, financial education gained even more importance and officially became a shared responsibility. In September, the Central Bank issued a statement establishing the principles for promoting financial education, which must be put into practice by all financial institutions. The Central Bank's expectation is that institutions will encourage customers to build up savings, organize and plan their budgets, as well as to understand and use financial products and services consciously, including credit.

Throughout the year, as part of their work to promote financial education, credit bureaus hold joint efforts so that delinquent consumers can settle or renegotiate their debts. The bureaus bring together consumers with outstanding bills and creditors so that they can reach an agreement on debt relief - of up to 90% of the amount owed in some cases. By contributing to this understanding, the bureaus are working to reduce default. With the same objective, they defend best credit practices in order for the market to function optimally, thus providing the necessary conditions for consumers and companies to always be up to date with their financial obligations.

Another important initiative is the one that requires educational institutions or networks to include financial education in their curriculum by the beginning of the 2020 school year. From next year, every school will have to teach financial education in a cross-curricular way, which means working on the subject beyond math, including subjects such as languages, history and geography. This obligation was achieved in 2017, when financial education was included in the National Common Core Curriculum (BNCC) for nursery and primary education.

CREDIT DISCIPLINE

The discipline of credit as a whole was much discussed in 2019, which is a step forward with the inclusion of concepts such as conscious credit, credit scores and financial education in families' lives. During the economic crisis experienced by Brazil between 2014 and 2016, credit cooperatives did a significant job of democratizing credit, which, on average, grew by 20% a year in terms of volume of operations. Since 2016, credit fintechs - which were in the spotlight this year - have started to grow, with the same proposal of including forgotten or less favored groups in the financial world.

From 2016 to 2018, according to a study by ABCD (Brazilian Association of Digital Credit), the volume of credit granted by fintechs grew more than sevenfold, surpassing one billion reais. Of the clients of these credit fintechs, 79% belong to classes C, D and E. Out of every ten legal entities served, seven are individual entrepreneurs, micro and small businesses. By including these borrowers, the rise of cooperatives and fintechs has created a welcome and necessary scenario of increased competitiveness.

The inclusion of classes C, D and E is also encouraged by the new Positive Registry, which, according to a study by the credit bureau sector, will bring 22 million Brazilians - equivalent to more than 10% of the population - into the credit market. In simulations with classes C, D and E, from the moment the positive history was applied, people's credit score rose to 60%. The new CP will therefore result in an increase in the credit score for six out of every ten people belonging to the less favored classes.

SIMPLE CREDIT COMPANY - ESC

Another important initiative in 2019 for the inclusion of small entrepreneurs in the credit market was the creation of the ESC (Empresa Simples de Crédito). The aim is to provide easier and cheaper access to credit. Credit can be offered by anyone who opens a company for this purpose. Also according to the law, which came into force in April, the operation must be regional, with loans only being made to businesses in the same or neighboring municipalities. There is a clear interest in regional development, since many cities in the interior of Brazil suffer from poor banking coverage. In this scenario of no or low access to financial products and services, the Positive Registry becomes the main or only source of consultation for credit analysis. In other words, the CP and the ESC work together for financial inclusion. I wrote about this in this article.

MACROECONOMIC SCENARIO

All these initiatives are taking place in an unprecedented macroeconomic scenario. The economy's basic interest rate (Selic) is at an all-time low. With the last decrease of the year, Brazil has left the ranking of the ten countries with the highest real interest rates in the world for the first time. With the Selic low, demand for credit is growing. In the first nine months of the year, according to a survey by the CNC (National Confederation of Trade in Goods, Services and Tourism), credit offered to individuals reached R$ 1.59 billion - the best performance since 2012. Demand for credit from companies, meanwhile, recorded its highest increase in 11 years, according to the credit bureau sector.

Country risk fell below 100 points on December 16, reaching its lowest level in almost ten years. This fall is the result, among other things, of an improvement in the rating agencies' assessment of the Brazilian economy. S&P (Standard & Poor's) upgraded Brazil's credit rating and Fitch raised its GDP growth forecast.

Expectations for the credit market in 2020 are as good as they can be. In my next article, you'll learn about the trends for next year.