Financing SMEs and Entrepreneurs 2022

6. Brazil

Key facts on SME financing

Micro and small enterprises (MSEs) form an essential part of the Brazilian economy, accounting for 98.5% of all legally constituted companies (11.5 million), for 27% of GDP, and for 41% of the total payroll.

The reference interest rate of Banco Central do Brasil (Special Clearance and Escrow System - SELIC) has been gradually declining, from 14.15% per annum in December 2015 to 6.4% in December 2018 (Sebrae, 2021[1]). The previous period of rate hike (from 7.25% in March 2013 to 14.25% in September 2016) led to high interest rates on loans for large corporate borrowers (14.8%) and SMEs (30.6%), leading to a shrinking demand for new SME loans. Interest rates have increased more for micro-enterprises and SMEs than for large businesses. However, this trend was reversed when the Central Bank decreased its rate at the end of 2016, thus decreasing interest rates for SMEs. In 2020 the Central Bank decided to lower the SELIC rate from 4.25% in February and 3.75% in March to 2.0% in August). In March 2021 the SELIC rate was increased to 2.75% p.a., achieving 3.50% in May 2021.

The stock of SME loans fell in 2015 and new lending to SMEs declined in 2014 and 2015. Both observations are in contrast with lending to large businesses, where the outstanding stock of loans, as well as new lending was up in 2014 and 2015. A sharp rise was observed in 2020 due to measures adopted in the context of the Covid-19 pandemic (see more under Government policy response).

Since 2008, large companies have received a larger share of business loans than SMEs. The government has taken on a more active role in this area, often with the aim to provide financial services to small businesses excluded from traditional financial institutions. Developments include a micro-credit programme, a quota to use 2% of demand deposits of the National Financial System to finance loans to low-income individuals and micro entrepreneurs, and a strong increase in the number of agencies where financial services are provided.

In the area of equity finance, the regulatory framework for angel investors was revised in 2016 and further adjusted in 2017, removing some long-standing barriers for investors in SME markets, in particular by offering more legal protection in the case of company closures, more flexibility in the type of investment and more information sharing between recipients and investors. In addition, new regulations concerning investment-based crowdfunding and Fintech were introduced in 2017 and 2018.

Table 6.1. Scoreboard for Brazil

Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Debt
Outstanding business loans, SMEs	BRL billion	251	332	365	448	533	609	666	711	682	586	510	500	536	731
Outstanding business loans, total	BRL billion	501	682	775	930	1.107	1.279	1.460	1.623	1.734	1.565	1.436	1.441	1.427	1.753
Share of SME outstanding loans	% of total outstanding business loans	50.08	48.61	47.10	48.15	48.15	47.62	45.65	43.78	39.36	37.41	35.51	34.69	37.55	41.66
New business lending, total	BRL billion						1 240	1 267	1 266	1 281	1 138	1 043	1 170	1 334	1 620
New business lending, SMEs	BRL billion						786	783	782	727	623	551	587	685	838
Share of new SME lending	% of total business lending						63.43	61.78	61.75	56.79	54.80	52.83	50.15	51.39	51.72
Outstanding short-term loans, SMEs	BRL billion	89	98	90	107	136	146	150	145	133	109	101	107	116	98
Outstanding long-term loans, SMEs	BRL billion	147	198	232	292	369	459	515	564	548	473	406	391	417	630
Share of short-term SME lending	%	37.69	33.04	28.08	26.83	26.94	24.20	22.51	20.50	19.49	18.80	19.86	21.42	21.80	13.42
Government guaranteed loans, SMEs	BRL billion	40	46	93	51	705	810	705	2 777	3 420	3 918	2 081	486	199	44 087
Direct government loans, SMEs	BRL billion	17	24	26	27	31	35	36	43	46	39	33	26	20	25
Non-performing loans, total	% of all business loans	1.54	1.55	2.67	1.84	2.02	2.22	1.84	1.88	2.39	3.15	2.99	2.45	2.08	1.20
Non-performing loans, SMEs	% of SME loans	2.83	2.83	4.99	3.56	3.95	4.4	3.7	3.8	5.4	6.6	5.97	4.55	3.55	2.07
Interest rate, SMEs	%						19.7	23.8	25.3	35.0	32.0	25.19	21.70	24.89	6.00
Interest rate, large firms	%						10.2	13.8	14.4	17.5	17.5	9.85	8.91	8.73	5.91
Interest rate spread	% points						9.5	10.0	10.9	17.5	14.5	15.3	12.8	16.2	0.1

Source: See Table 6.2 of full country profile.1

Regarding government guaranteed loans indicator, it is worth mentioning that the number of 2020 considers two of the emergency credit programs launched by the federal government in the context of the Covid-19 pandemic (National Program to Support Micro and Small Enterprises – Pronampe, and Emergency Employment Program – Pese). In both cases, relevant federal government guarantees are destinated for loans.

SMEs in the national economy

Micro and small enterprises (MSEs) account for the overwhelming majority of the total number of Brazilian enterprises (98.5%), contributing to 54.5% of formal employment (Sebrae, 2016[2]), and to 30% of GDP. In addition, MSEs account for about 37% of the federal administration’s procurement (Governo do Brasil, 2016[3]). Those numbers would be higher if the active number of sole entrepreneurships and individual micro entrepreneurs were included2. MSEs play an important role in creating new formal registered jobs in the economy, according to data from the Brazilian Ministry of Labor and Employment. Between 2007 and 2019, 12,4 million jobs were created by MSE. In 2020, micro and small enterprises hired 293 200 employees, while larger firms dismissed 193 600 workers.

The more accepted definition of MSEs in Brazil is based on the annual turnover criterion according to the Statute of Micro and Small Enterprises (Lei Complementar 123/2006). The banking industry, however, relies on different definitions based on internal criteria that meet their respective targeting strategies.

In terms of the size classification established by the Brazilian Institute of Geography and Statistics (lBGE), the segment of micro, small and medium enterprises (MSMEs) comprises companies that have up to 249 employees: micro enterprises have 0 to 9 employees, small enterprises have 10 to 49 employees, and medium-sized enterprises have between 50 to 249 employees. All companies having more than 249 workers are classified as large enterprises.

With a relatively high self-employment rate (32.9% in 2017), Brazilian policy makers have increasingly turned their focus to improving the business climate for SMEs and entrepreneurs in recent years (OECD, 2017).

Brazil's economy is highly dependent on its service sector, which accounts for 72.8% of GDP, followed by the industrial sector (20.4%) and agriculture (6.8%) (IBGE, 2020[4]). Because of the 47% depreciation of the Brazilian real in 2015 (virtually counterbalanced by a 17% appreciation in 2017 and a 12% depreciation in the first semester of 2018), attention has turned towards catalysing the export sector.

Brazilian MSMEs have thus far only been contributing to a small share of Brazilian exports (5.8% in 2016) (Ministério da Economia, 2016[5]), which suggests that there is an opportunity for them to be more active in Brazilian international trade. With the service industry growing in Brazil, and as the government is focusing its efforts on nurturing and supporting individual micro entrepreneurs and MSMEs, the status of this segment is becoming increasingly more important.

SME lending

In the last few years, a new challenge to a sustainable provision of finance and credit to MSMEs has emerged. After years of high growth, Brazil entered a recession in 2015, partially caused by the recent credit boom, followed by debt deleveraging. Companies also allocated their resources in costs and expenses, rather than in investments. By failing to increase their cash flow capacity to repay loans, many entrepreneurs failed to honour their commitments. Another explanation is the rising cost of post-fixed loans during the 2015 economic decline.

The economic contraction took a toll on nominal SME bank lending rates in 2015, when the stock of SME loans declined. This decline is potentially due to the worsening economic climate, as well as the high interest rates charged. Once adjusted for inflation, the share of the outstanding stock of SME loans as a share of total business loans has been on a decreasing path since 2013. While total outstanding lending has grown rather steadily over 2007-15, loans to large companies were driving this trend. Over the past few years, growth in SME lending has turned negative as funds drifted away from SMEs towards larger, less risky companies. This trend can also be observed via the share of outstanding lending for SMEs, which decreased from 50.08% in 2007 to 34.69% in 2018. This trend reversed in 2018 and achieved 41.66% in 2020, due to the government measures related in response to the COVID-19 pandemic. and represents the highest percentage increase for SMEs in comparison to outstanding total loans in the series available.

New lending to SMEs follows a similar downward path over the same period. This trend was reversed in 2019 and 2020, with the support of public and private actions monitored by SEMPE/ME. Since 2007, there has been an increasing preference for long term lending to SMEs and micro enterprises. While 37.79% of loans were short-term in 2007, this share has since then fallen to 21.80% in 2019, achieving 13.42% in 2020.

Credit conditions

Despite their importance to economic growth, MSMEs suffer more from credit constraints than larger companies, since they usually have less collateral to secure a loan and are more likely to default than large companies. This situation is often exacerbated by the lack of financial planning and training of managers.

According to SEBRAE, 83% of MSMEs owners did not request any credit in 2016, while 19% of those that had requested one were denied by banks. SEBRAE also indicates that the default rate increased from 3.4% in 2012 to 8% in 2016.

In an effort to curtail inflation, Brazil's Central Bank started raising benchmark interest rates in 2011 and kept them at a high level (14.25%) until September 2016. Since then, there has been a gradual though significant decline (3.50% in 2021). That episode led to high interest rates, averaging 34.99% for SMEs in 2015 and 17.45% for large companies in 2015, at their peaks. Moreover, the interest rate spread widened over those years peaking at 17.54% in 2015 and has been decreasing progressively since then. In 2018, the interest rate for SMEs reached 21.7%, while large companies’ interest rates reached 8.9%. Due to the significant decline in benchmark interest rates in 2020, the average rate for SMEs achieved 6.0% and 5.91% for large companies. Another important factor to such decline in interest rates for SMEs are the government support measures to reduce the risk of SME lending and to support them through the pandemic period. For instance, the National Program to Support Micro and Small Enterprises - Pronampe was made available to SMEs at a rate composed of the Brazilian benchmark rate plus an annual interest rate of 1.25% (see more under Government policy response).

Alternative sources of SME financing

As the cost of debt has continued to rise and economic growth has slowed, investors have begun turning to alternative financing methods as well as consolidating businesses through mergers and acquisitions of smaller companies.

Small investors are often discouraged to borrow money from a bank due to the high interest rates, requiring substantial profit margins to cover the costs. Moreover, the lack of tax incentives constitutes an obstacle for the development of alternative sources of investment in Brazil from the investor-side.

Angel Investment

Angel investing is a relatively new field in Brazil and the network is still in its infancy. As of 2013, Brazil had more than 6 500 angel investors venturing in around 1 500 companies, with an investment potential of BRL 2.6 billion. According to the organization Anjos do Brasil - a non-profit angel investment network and angel investing group in Brazil - there were 7 615 angel investors in February 2021, slightly, but total angel investments amounted to BRL 1 billion in 2019, a 9% increase from 2018, although still far from reaching its full potential.

Surveys show that Brazilian investors are willing to invest their money in start-ups despite the risks, but due to legal uncertainty, most of them refrain from doing so. The Statute of Micro and Small Enterprises (Lei Complementar 123/2006), with the new Lei Complementar 155/2016 (the “Angel Investment Law” enacted in October 2016 and regulated by Normative Ruling RFB no. 1719) addresses some of those uncertainties looming over angel investors, crowdfunding equity investors and venture capitalists.

The Angel Investment Law aims at promoting innovative activities and productive investments. It represents a milestone for the development of entrepreneurship in Brazil by addressing early-stage investments in Brazilian start-ups. The new law amends the National Statute of Micro and Small Enterprises to bolster the legal framework for early-stage investments in Brazilian start-ups with gross annual income of less than BRL 4.8 million.

It has also brought new benefits and protection for investors. For instance, investors will no longer be personally or legally liable for the debt of the companies they invest in vis-a-vis the previous legal status quo. The update of the Statute also makes a difference relative to labour liabilities of a bankrupt or insolvent enterprise. It furthermore extends the fiscal benefits of the Simples Nacional regime to start-ups.

With the enactment of the Angel Investment Law, Brazilian start-ups may now receive seed money from individuals, companies and investment funds through a participation agreement (contrato de participação). The amount invested through the participation agreement is not added to the share capital and, therefore, angel investors are not considered as equity owners of the start-up. As a result, angels investing through a participation agreement have no management or voting rights in the company. While this may seem unattractive and a deterrent to investment, this legal structure does protect angel investors from liabilities of the start-up, even in the event of insolvency. Moreover, the participation agreement can mirror certain rights that are typically granted to equity owners, such as tag-along and pre-emptive rights.

The participation agreement must provide that the angel investor’s right to receive dividend distributions is limited to a 5-year term, and distributions may not exceed 50% of the company’s net profits in each fiscal year. Moreover, the participation agreement must be effective for no longer than 7 years. Even though the Angel Investment Law does not provide guidelines as to what happens after this seven-year period, it is expected that upon termination of the seven-year period, the angel investor must exercise the right to withdraw or convert the contribution to actual equity, if the participation agreement provides for such transition. In addition, an angel investor’s right to withdraw its interests in the startup can only be exercised after at least two years have passed from the date of the investment. However, this lock-in does not prevent the angel from transferring ownership of its participation interest to third parties upon consent from the other equity owners, unless otherwise provided in the participation agreement.

There are still a few loopholes in the new law and some regulatory conflicts that must be addressed. Considering the Angel Investment Law is new, either the courts will provide clear and uniform interpretation to reconcile these regulatory bodies as conflict arises or the Congress will draft supplementary legislation to address these questions. Despite these pending issues, the adoption of the Angel Investment Law should contribute to a safer and more conducive environment for angel investors, especially non-Brazilian angels.

Investment-based Crowdfunding

In July 2017, the Securities and Exchange Commission of Brazil (CVM) promulgated new regulations on investment-based crowdfunding (Normative Ruling CVM no. 588), aiming at making it more attractive through accredited private platforms. It dispensed a thorough review and approval by CVM for all investment-based crowdfunding initiatives – until recently, a time consuming and burdensome process.

The regulation covers the public offering of securities issued by small business (gross annual revenue limited to BRL 10 million) through participative investment electronic platforms. They will be able to publicly fund their activities without the need of a previous registration at CVM.

The annual funding limit per issuer is BRL 5 million per calendar year, with underwriting periods of no longer than 180 days. The annual funding limit per investor is BRL 10 000, and this limit may be increased by up to 10% in case of qualified investors.

The platform must be registered and accomplish a set of requirements, as it has an intermediation role in the public offering. They shall disclose to the investor that the offering and the issuer are not subject to a prior registration with CVM and that the Commission does not assure the truthfulness of the provided information.

Fintech

In April 2018, the Brazilian National Monetary Council (CMN) issued a resolution (Resolution CMN 4656/2018) which provides for the creation of two new types of financial institutions to fund clients through electronic platforms. The licensing process is simplified compared to a traditional financial institution and there is no need to act in collaboration with traditional banks.

The direct credit company (Sociedade de Crédito Direto – SCD) is allowed to fund their loans exclusively through equity capital. The SCD is prohibited to have equity in other financial institutions and to raise capital from the public to fund their clients. The SDC is allowed to sell and/or assign the credits to other financial institutions and it must comply with Brazilian Central Bank prudential supervision regulation.

The peer-to-peer loan company (Sociedade de Empréstimo entre Pessoas – SEP) is allowed to connect lenders and borrowers and to intermediate the negotiation of funding through electronic platforms. The lenders/creditors may be individuals, legal entities or investment funds. The borrowers/debtors may be individuals or legal entities domiciled in Brazil. The SEP is not co-obliged and does not grant any guarantee/security to the transactions.

The creditors/lenders exposure is limited in terms of credit amount (BRL 15 000), as well as by SEP, but qualified investors are exempted from such limits. SEPs are forbidden to use their own capital to fund loans in the platform and to hold equity of another financial institution.

The SCD and the SEP must have a permanent minimum requirement of BRL 1 million for both corporate capital and net worth. International fintechs and investors may become equity holders of Brazilian fintech shares upon presidential decree authorization.

Given their low-cost operational structure, the credit fintechs are specialized in providing financial services to economic segments with a short credit record in Brazil — such as micro, small and medium-sized enterprises.

In March 2020 regulatory enhancements were implemented for credit fintechs. CMN Resolution 4,792/2020 further expanded the SCD and SEP fundraising scope. The SCD will be able to funding their operations with resources from the National Bank for Economic and Social Development's (BNDES) — becoming thus another important channel for carrying out public policies, given their capillarity.

Originally, those fintechs could sell or assign their credit operations exclusively to the Receivables Investment Funds ('Fundos de Investimento em Direitos Creditórios' – FIDC) whose quotas are offered exclusively to qualified investors. The new regulation allowed the SCD and SPE assign receivables to other types of fund, provided that their quotas are offered exclusively to qualified investors.

SEPs can also issue electronic money. The SCDs, in addition to being authorized to issue electronic money, are also authorized to issue post-paid payment instruments (credit cards), allowing them to provide revolving credit. Importantly, SCDs and SEPs can also support to the development of the Brazilian capital market, as they can operate with securitization companies, and investment funds may be part of their controlling groups.

Other indicators

Overall, the rate of non-performing loans for SMEs, with the exception of micro enterprises, remains close to the rate observed for all businesses. SME non-performing loan rates have remained relatively low - picking up only slightly from 2.83% of SME loans in 2008 to 6.61% in 2016. It stared declining in 2017 and achieved the 3.55% in 2019 and 2.07% in 2020.

Government policy response

The contribution of Brazilian small businesses to the overall economy remains less prominent compared to their counterparts in advanced and other high middle-income countries, which demonstrates an opportunity for this segment to play a more prominent role in the economy. Moreover, there is an acute perception of the urgent need to adopt structural measures to improve the business environment so that MSEs become less susceptible to a breakdown in times of crisis, ensuring minimum employment and income levels in the country. A significant landmark in the creation of an enabling environment for micro and small enterprises was the Microenterprise Statute (Estatuto da Microempresa), promulgated in 1984.

Four years later, the new federal constitution (Constituição Federal, 1988) recognised the central role of micro and small enterprises in the economy.

In 1990, the autonomous small and micro enterprise development agency SEBRAE (Serviço Brasileiro de Apoio às Micro e Pequenas Empresas) was created.

The passing of a Constitution-mandated law (Lei Complementar 123/2006), known as the National Statute of the Micro and Small Enterprises or the General Law for Micro and Small Enterprises boosted formal entrepreneurial activity, because it made it easy for individual micro entrepreneurs (MEIs) to start a legal business entity.

The Brazilian Government offers multiple incentives for national individual micro entrepreneurs (MEI, acronym in Portuguese) and MSEs. Among these, there are special credit lines that are easier to obtain and that help small business grow.

In September 2017, the Decree 9161/2017 was issued to regulate the Programa Nacional de Microcredito Produtivo Orientado, (PNMPO), which provides credit access to small enterprises (Presidência da República, 2017[6]). The MSEs Microcredit Programme decree included the rural productive activities as beneficiaries, increased the gross revenue limit for beneficiaries, and established the methodology for the credit operation – to be conducted by specialized professionals.

As the government works to improve lending conditions for SMEs, Brazil has experienced steady real growth in its government loan guarantees from BRL 6.55 billion in 2013, to BRL 9.44 billion in 2015.

In April 2018, the Chamber of Foreign Trade approved improvements in the MSMEs Export Credit Insurance - eligible criteria, premium price and risk coverage among others. The objective is to boost MSMEs growth by enabling these companies to reach overseas markets and maintain a stable level of exports. MSMEs with gross revenue up to BRL 300 million and exports up to US$ 3 million are eligible to export credit insurance (Executive Secretariat of the Chamber of Foreign Trade, 2018[7]) and there is no minimum transaction amount required to apply. The export credit insurance provides coverage against commercial, political and extraordinary risks, which might impact the MSMEs goods and/or services export transactions either in the pre-shipment or in the post-shipment phases.

As a result of these different credit policies, the number of customers using financial services has increased substantially. In 2010, the national credit registry estimated that 114 million of individuals and 6.5 million of businesses had active credit operations. In 2012, domestic credit to the private sector had risen to 53.3% of GDP, up from 25.5% in 2001. Public banks tripled their share of total domestic credit supply over the same period.

Through the above-mentioned credit programmes, the Brazilian Government aims to overcome one of the main barriers to micro and small enterprise development in the country. Without access to credit at affordable interest rates, small production units remain trapped in the informal sector, relying on subsistence strategies and insufficient resources to address their low productivity and profitability.

Notwithstanding this progress, significant challenges remain in terms of credit and financial service provision. The financial inclusion project, developed by the Central Bank in 2009, therefore established three main goals:

Ensuring that the supply of financial services is adapted to the needs of the public, with more emphasis on savings and insurance instruments;

Promoting transparency in the supply of financial products and extending financial education;

Expanding people's access to financial services.

The Brazilian Bankruptcy Law was amended with specific provisions for MSEs (Law 14112/2020). Taking into account that MSEs account for 60% of the judicial reorganization, the bill establishes different time limits and debt instalment.

In April 2019, the National Congress issued the Complementary Law 167 (Lei Complementar n°167, de 24 de abril de 2019) which creates the Simple Credit Company (Empresa Simples de Crédito - ESC) in the municipalities, aimed to operate loans, financing and discounts of credit securities for MEIs and MSEs. The complementary bill authorises the ESC inclusion in the Simple Nacional regime to benefit from fiscal incentives, in order to facilitate the creation of ESCs and the financing of micro and small enterprises.

COVID-19 response measures

In order to face the adverse impacts of the Covid-19 pandemic crisis on the Brazilian economy, the Brazilian Federal Administration announced a package of measures to increase the liquidity of the National Financial System (SFN) by BRL1.2 trillion. In addition, the measures regarding temporary capital relief for financial entities imply a potential expansion of the credit supply by BRL 1.16 trillion.

In March 2020 emergency aid was released in order to support the payroll costs of micro, small and medium-sized enterprises'. The state-owned Federal Savings Bank (Caixa) offered credit lines to small-and medium-sized firms aimed at working capital, purchase of payroll loan portfolios from medium-sized banks and agribusiness. The bank also cut interest rates on some types of credit and offered clients a grace period of 90 days. The Bank of Brazil increased its credit lines, aimed at working capital, investments, prepayment of receivables, and agribusiness. The Brazilian National Bank for Economic and Social Development (BNDES) opened a working capital loan line for micro and small firms, stablished a 6-month interruption of outstanding loan payments with no late interest payment, and expanded the scope of the “BNDES Credit Small Business” line. The companies will have a 24-month grace period and five years of total term to pay for these new loans.

The most successful measure destined to micro and small enterprises is “Pronampe” (National Program to Support Micro and Small Enterprises - Law 13.999/2020). In March 2020 the Federal Administration launched the program to support the distribution of credit to micro and small firms. It is an extraordinary credit line in the form of guarantees with the aim to reduce the risk assumed by financial institutions, improve credit conditions and decrease interest rates. Due to the high demand, it became a permanent program in 2021. The Federal Revenue of Brazil (RFB) provided micro and small companies electronically a letter certifying their data on annual gross revenues and capital stock, in order facilitate credit analysis for those interested in joining Pronampe. In addition, the RFB sent electronically to the financial institutions enrolled in Pronampe information on micro and small enterprises registration number, annual gross revenues, and capital stock. The reliable and easily accessible data reduced the asymmetry of information between creditors and borrowers, and the majority of Pronampe financial operations were carried out online. In 2020 the program reached 517 053 operations (217 586 for microenterprises, 299 467 for small enterprises).

“PEAC-FGI” (Emergency Credit Access Program – Provisional Measure 975/2020 and Law 14.042/2020) is a federal government program aimed to supporting small and medium-sized enterprises, associations and cooperatives to obtain credit. Through the granting of guarantees, the program reduces the risk assumed by financial institutions, improve credit conditions and decreases interest rates. The BNDES, linked to the Ministry of Economy, is responsible for PEAC-FGI. In 2020, for the first time since 1995 (when these data began to be calculated) BNDES disbursements to MSMEs were higher than all other BNDES clients, reaching the 52% mark. These disbursements to MSMEs increased 27% if compared to the previous year.

Credit cooperatives were allowed to issue Real Estate Credit Bills (LCI) with the aim to raising funds to finance real estate credit through alternative instruments, as well as providing conditions to increase competition and the supply of financial products and services (BCB Circular Nr. 4,000/2020). The limit for collateralized loans for cooperatives banks was increased in April 2020. The limit for loans for banks associated with a cooperative credit system — through Special Temporary Liquidity Line backed by Guaranteed Financial Letters (LTEL-LFG) — was changed to 100% of the Adjusted Net Equity.

The Under-Secretariat of Micro and Small Enterprises (SEMPE/ME)

The Under-Secretariat of Micro and Small Enterprises (SEMPE) is part of the Ministry of Economy in the new Federal Administration structure stablished in 2019. SEMPE is responsible for formulating, articulating and implementing the National Policy for the Development of Micro and Small Enterprises, and aims to improve the operating environment for SMEs, including greater coordination to foster access to finance and credit, which is seen as a key priority. SEMPE/MDIC’s main institutional competencies include developing, implementing and monitoring policies and other government initiatives aimed at the improvement of the business environment affecting small businesses, including artisans and traditional handcrafters (around 7 million individuals), individual entrepreneurs (7 million Micro Empreendedor Individual – MEI), start-ups, micro, and small enterprises (around 8 million MSEs).

Among SEMPE's objectives are the broadening of access to credit and the development of private investment for MSEs, besides access to training, innovation, new markets, simplification in the opening and legalization of companies. These objectives are achieved through training and guidance of micro and small entrepreneurs, the simplification of procedures and the creation of an official network that facilitates the exchange of information between borrowers and lenders.

• The Fórum Permanente da Micro e Pequena Empresa (National Consultation Forum on Micro and Small Enterprises) - an institutional framework designed to facilitate dialogue between government and MSEs representative entities, presided by SEMPE - has been instrumental in supporting the Secretariat activities. Under the aegis of Fórum Permanente, there is a committee dedicated to foster the universalization of access to credit and the development of private investment for MSEs. The committee’s activities entail the development of new forms of guarantees, training of micro and small entrepreneurs on finance issues, reduction of interest rates for renegotiation of past-due debts, as well as stimulating private investment (such as angel investment).

Among Fórum Permanente’s actions in 2018 to foster better access to credit, the following are to be highlighted:

• National Policy for Support and Development of Micro and Small Businesses (Política Nacional de Apoio e Desenvolvimento das Micro e Pequenas Empresas) - aims to guide and harmonize programs, projects, actions and initiatives in all spheres of government and private institutions, which impact the environment of Micro and Small Businesses, with the objective of developing them, as well as contributing to the economic and social development of the country.

• National Credit Guarantees System (Sistema Nacional de Garantias de Crédito) - SEMPE has been drawing up studies to regulate article 60-A of Lei Complementar 123/2006, which provides that a National Credit Guarantees System may be established with the purpose of facilitating the access of MSE to credit and other financial institutions services.

• MSE National Credit Week (Semana Nacional de Crédito da Micro e Pequena Empresa) – this activity is focused on the renegotiation of bank debts and obtainment of new funding. Free mentoring in credit procedures, financial management and use of guarantees are offered. It is conducted by SEBRAE and counts on financial institutions participation.

• Oriented Credit Programme (Programa de Crédito Orientado) – implemented in partnership with SEBRAE and financial institutions, the programme aims to ensure that loans granted to MSEs are sustainable and competitive. Its activities encompass entrepreneur training on financial management and the enterprise evaluation regarding the need to obtain credit.

BNDES

Banco Nacional de Desenvolvimento Econômico e Social (Brazilian National Bank for Economic and Social Development, BNDES) is a federal public company associated with the Ministry of Economy. Its goal is to provide long-term financing to enterprises that contribute to the country's development. BNDES is one of the largest development banks in the world, with assets in the order of BRL 778.3 billion (BNDES, 2021[8]).

BNDES finances investments to expand, modernise and recover the production capacity and competitiveness of national companies, including MSMEs. It provides several financing products to meet the financial needs of MSMEs (firms with annual gross revenue of up to BRL 300 million) (BNDES, 2021[9]). MSMEs have access to BNDES finance and credit lines through Banco do Brasil, Caixa Econômica Federal and other state-controlled banks, as well as private banks with large outreach (there are 5 570 (IBGE, 2020[10]) municipalities in Brazil, of which 100% have at least one accredited finance services provider).

According to BNDES, approximately 50% of its financing is made through indirect operations, brokered by financial agents like Banco do Brasil, which has at least one agency in every Brazilian city of economic relevance.

Between 2015 and 2016, spending on MSMEs accounted for 27.5% and 30.8% of BNDES total outlay. This share picked up and reached 52% in 2020 (BNDES, 2022[11]), thus reflecting BNDES’s new policy priorities of expanding MSMEs’ access to credit.

BNDES is an important source of SME lending nationwide through a range of credit lines and credit products such as the BNDES Card (a credit card with a pre-approved credit line), FINAME (to support the acquisition of capital assets) or BNDES Crédito Pequenas Empresas (a simplified credit line for investments up to BRL 500 000 per year).

BNDES has also recently launched Canal MPME, a digital platform that provides information on BNDES credit lines and through which MSMEs can apply for business loans. Loan applications are then redirected to accredited banks and financial institutions, including fin-techs companies. Because of its intermediary role, BNDES has also helped reduce banking concentration by enabling small financial institutions to apply for and use its SME credit lines.

In 2020, while BNDES’s general support benefited nearly 466,000 clients (who employ more than 10 million people), the emergency measures to combat the effects of Covid-19 boosted 393,000 enterprises. Of this total, the largest quota in values, number of enterprises supported, and jobs were small- and medium-sized enterprises. BNDES disbursements (not counting emergency measures) supported 134,000 enterprises in 2020, of which 58,000 went to new borrowers, who did not access the Bank for at least the last six years. For the first time since 1995, when these data began to be calculated, BNDES disbursements to MSMEs were higher than all the others to other BNDES clients. These disbursements to MSMEs increased 27% from the previous year (BNDES, 2021[12])

Figure 6.1. Trends in SME and entrepreneurship finance in Brazil

Source: See table 6.2

Statlink

Table 6.2. Definitions and sources of indicators for Brazil's scoreboard

Indicator	Definition	Source
	In 2020, there was a change in the criteria for classifying the size of companies into MSMEs and large. Therefore, the data from previous years were recalculated. The current criteria for classifying the size of companies is determined by an intern algorithm, which considers three sources of information: i) size of micro and small enterprises set by Federal Revenue of Brazil; ii) size mode informed by financial institutions in the Credit Information System (in case of tie, it is considered information of the financial institution in which the company has the greatest volume of debt); (iii) corporate indebtedness amount (bank credit, capital market, internalized external debt) to enclose size’s boundaries. The criteria (i) and (ii) take into consideration annual gross revenue standards of Complementary Laws 123/2006 and 11,638/2007. The criteria (iii) is residual and classifies companies’ sizes not set by criteria (i) or (ii).	Central Bank of Brazil, Credit bureau data; Federal Revenue of Brazil
Outstanding business loans, SMEs	Bank and financial institution loans to Micro, Small and Medium-sized Enterprises (SMEs), amount outstanding (stocks) at the end of period.	Central Bank of Brazil, Credit bureau data
Outstanding business loans, total	Bank and financial institution business loans to all non-financial enterprises, outstanding amounts (stocks)	Central Bank of Brazil, Credit bureau data
Share of SME outstanding loans	Proportion between outstanding business loans to MSMEs and total business loans	Central Bank of Brazil, Credit bureau data
New business lending, total	New credit granting over the course of the year, where new business loans are those with credit granting date equal to the reference date. Data not available before 2012.	Central Bank of Brazil, Credit bureau data
New business lending, SMEs	New credit granting over the course of the year, where new business loans are those with credit granting date equal to the reference date. Data not available before 2012.	Central Bank of Brazil, Credit bureau data
Share of new SME lending	Proportion between new business loans to SMEs and total business loans over the course of the year	Central Bank of Brazil, Credit bureau data
Outstanding short-term loans, SMEs	Loans equal to or less than one year to SMEs.	Central Bank of Brazil, Credit bureau data
Outstanding long-term loans, SMEs	Loans for more than one year to SMEs.	Central Bank of Brazil, Credit bureau data
Share of short-term SME lending	Proportion between short-terms loans (<1 year) to SMEs and long-terms business loans to SMEs.	Central Bank of Brazil, Credit bureau data
Government guaranteed loans, SMEs	Loans guaranteed by government, stocks, SMEs.	Central Bank of Brazil, Credit bureau data
Direct government loans, SMEs	Direct loans from government, stocks, SMEs. Encompasses only loans made by public development banks, not commercial or public controlled banks.	Central Bank of Brazil, Credit bureau data
Non-performing loans, total	Outstanding credit operations with at least one payment past due 90 days, total. The values presented here involve only deliquency and not broader measures of problematic assets.	Central Bank of Brazil, Credit bureau data
Non-performing loans, SMEs	Outstanding credit operations with at least one payment past due 90 days, SME. The values presented here involve only deliquency and not broader measures of problematic assets.	Central Bank of Brazil, Credit bureau data
Interest rate, SMEs	Median annual rates for new loans to SMEs. Data not available before 2012.	Central Bank of Brazil, Credit bureau data
Interest rate, large firms	Median annual rates for new loans to large firms. Data not available before 2012.	Central Bank of Brazil, Credit bureau data
Interest rate spread	Difference between median annual rates for small and large enterprises	Central Bank of Brazil, Credit bureau data

References

BNDES, Historical Data, Brazilian Development Bank (BNDES)

https://www.bndes.gov.br/SiteBNDES/bndes/bndes_en/Institucional/Investor_Relations/Financial_Information/historical_data.html

https://www.bndes.gov.br/wps/wcm/connect/site/5b978105-430a-4768-8cc7-2da4ef18d283/Int2+1D+a+produto+MPME.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE.Z18_7QGCHA41LORVA0AHO1SIO51085-5b978105-430a-4768-8cc7-2da4ef18d283-m7pb-P6

https://www.bndes.gov.br/wps/wcm/connect/site/079e02d5-299d-4517-b39c-9ac1286af7b2/201903_BOLETIM_DE_DESEMPENHO-com+Mercado+de+capitais.pdf?MOD=AJPERES&CVID=mFm6Vgh

BNDES, BNDES Card, Brazilian Development Bank (BNDES)

https://www.cartaobndes.gov.br/cartaobndes/PaginasCartao/FAQ.ASP?T=1&Acao=R&CTRL=&Cod=90,90#P

IBGE, “Contas Nacionais” (2017), Brazilian Institute of Geography and Statistics (IBGE)

ftp://ftp.ibge.gov.br/Contas_Nacionais/Contas_Nacionais_Trimestrais/Fasciculo_Indicadores_IBGE/2017/pib-vol-val_201704caderno.pdf

MDIC, “Crescem Exportações de Micro e Pequenas Empresas” (2017), Ministry of Industry, Foreign Trade and Services (MDIC)

http://www.mdic.gov.br/index.php/noticias/2760-crescem-exportacoes-de-micro-e-pequenas-empresas

OECD, OECD Data Brazil https://data.oecd.org/brazil.htm

SEBRAE, “Anuário do Trabalho nos Pequenos Negócios” (2016), Brazilian Micro and Small Business Suport Service (SEBRAE)

http://www.sebrae.com.br/Sebrae/Portal%20Sebrae/Anexos/Anuario%20do%20Trabalho%20nos%20Pequenos%20Neg%C3%B3cios%202016_.pdf

The Brazilian Government, Microcredit Programme (2017)

http://www.planalto.gov.br/ccivil_03/_ato2015-2018/2017/decreto/D9161.htm

The Brazilian Government, MSMEs Export Credit Insurance (2018)

http://camex.gov.br/noticias-da-camex/2010-deliberacoes-da-116-reuniao-do-conselho-de-ministros-da-camex

http://camex.gov.br/component/content/article/62-resolucoes-da-camex/em-vigor/2024-resolucao-n-33-de-11-de-maio-de-2018

The Brazilian Government, Public Procurement (2016)

http://www.brasil.gov.br/economia-e-emprego/2016/01/micro-e-pequenas-empresas-ja-tem-incentivos-em-compras-publicas

The Brazilian National Congress, Bankruptcy Bill

http://www.camara.gov.br/proposicoesWeb/prop_mostrarintegra;jsessionid=B9BE27CB6CD1D2B9D85FEE100F36F3FE.proposicoesWebExterno2?codteor=1658833&filename=Tramitacao-PL+10220/2018

http://www.camara.gov.br/proposicoesWeb/fichadetramitacao?idProposicao=2174927

Notes

← 1.  It is important to notice that in 2020 there was a change in the criteria for classifying the size of companies into SME and large. In this context, data from previous years was recalculated.

← 2.  MEI (acronym in Portuguese, which includes 492 professional categories) are sole entrepreneurs invoicing up to BRL 81000. This enterprise category benefit from privileged tax collection system that has been contributing to reduce informality. They pay a fixed monthly amount of for social security, VAT (ICMS) and/or services taxes (ISS), which guarantee access to labour benefits.