BRASILIA (Reuters) – Brazil’s government announced new rules on Wednesday to expand payroll-deductible loans for private-sector workers through the country’s digital work card app, allowing groups such as domestic and rural workers to access cheaper credit.
The measure by President Luiz Inacio Lula da Silva comes as his popularity has sharply declined in opinion polls, and is expected to boost loans, running counter to the central bank’s aggressive interest rate hikes aimed at cooling economic activity.
This type of credit already existed in Brazil, but the government’s economic team had argued it did not reach a large share of formal workers, as it depended on agreements between companies and banks
Estimates from banking industry group Febraban released by the government indicate the new system could generate up to 120 billion reais ($20.6 billion) in loans over four years, potentially benefiting around 19 million formal workers out of a total of 47 million.
According to the government, the system will launch on March 21 and aims to reduce excessive indebtedness by offering a lower-cost credit line for refinancing more expensive debt.
Workers will use the digital work card app to request loans directly from banks participating in the program. They will receive offers within 24 hours and complete the transaction through the chosen financial institution’s platform.
Loan repayments will be deducted monthly from workers’ paychecks via the eSocial digital system, which consolidates employer-submitted records.
Workers will be able to use as collateral up to 10% of their balance in the FGTS severance fund and 100% of the received termination penalty in case of dismissal.
($1 = 5.8308 reais)
(Reporting by Marcela Ayres; Editing by Alexandra Hudson)
Comments