If there is one thing that investors are worried about when it comes to Brazil, it is how far the country’s consumer credit boom of the past decade still has to run.

Not too much further, say critics, who point to a rise in average household expenditure on servicing debt. And indeed, private sector credit has doubled over the past decade.

But Data Popular, a research firm, has come up with a startling finding that could give hope that Brazil’s credit binge can continue – without degenerating into a bubble. Apparently, 55m Brazilians – or 40 per cent of the country’s population – don’t have a bank account.

The amount that passes outside the Brazilian banking system, R$665bn ($332.1bn), is the equivalent of Colombia’s economic output.

Before you conclude that these are either the very poor who do not have any money or white-collar workers evading taxes or bandits the police, Data Popular has another startling fact. More than half of these people are regarded as ordinary middle class families, in other words, those with monthly income from R$292 to R$1019, although more than 72 per cent of them do live in the country’s poor North and Northeast.

This is from Data Popular:

There are three reasons for the high number of unbanked people: 1) the low number of banks branches in smaller towns; 2) people’s negative prior experiences with banks, such going into debt and 3) perceptions they will pay higher taxes.

With the growth of the middle class crucial to their future, banks will need to go the extra mile to attract this potentially large but elusive market.

Novel new products – such as “floating banks and ATMs” – will be needed.

Perhaps given the high levels of robbery in Brazil, which makes keeping money under your mattress a riskier than usual proposition, the banks could start offering insurance for those who keep money in their houses. The more creative the client is at hiding the money, the lower cost the insurance.

Related reading:
Santander vs BBVA – a tale of two LatAm loan markets, beyondbrics
Santander Brazil: canary in a coal mine?, beyondbrics
Credit in Brazil: slowing down, beyondbrics
Brazil: Credit to redeem, FT (2011)

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