25% of Brazilian families have sizeable debt

The Brazilian newspaper O Estado de S. Paulo recently reported that 25% of Brazilian families dedicate more than a third of their income toward debt payment. While a surprising statistic, it makes more sense once you realize that most have modest discretionary income. On average, 70% of income is tied up in essentials like food, housing and healthcare.

During the last four years, Brazilian financial institutions have loosened credit criteria while also lowering interest rates, resulting in more loans being granted to lower-income households. While this can certainly have positive impacts for both consumers and lenders, the downside appears to be an increase in delinquency rates. We’re seeing 20% higher delinquency rates among first-time borrowers.

With so many new borrowers in Brazil, better financial education is now a must (and something we frequently advocate in regional industry discussions and media briefings). We all benefit from savvy consumers who engage in credit-building activities and can manage their credit even when times get tight. And of course, it reinforces the need for lenders to leverage predictive analytics that help them make smarter decisions when it comes to gauging consumer credit risk and capacity.