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Jun242015

Floating Bank Floats New Dreams for Brazilian Middle Class

Wednesday, June 24, 2015 at 12:24PM

Brazil’s booming economy has seen a dramatic increase in the size of its middle class. More and more people have been lifted out of poverty as a growing, stable economy overcomes years of political and economic instability. In 2010, Brazil’s economy grew by a record 7.5 percent, surpassing a previous peak in 1986 (Brazilian Institute of Geography and Statistics) (IBGE) (www.ibge.gov.br/english). The country’s gross domestic product (GDP) reached 3.67 trillion reais (US $2.21 trillion) in 2010, making it Latin America’s largest economy.

This strong growth is being fuelled by growing domestic demand in Brazil.

One key component in building personal wealth is the ability to save and bank. It is common across the global South for the poor and lower middle classes to be ignored by traditional banking services.

Freezing large numbers of people out of banking services is a double problem. Individuals are being denied a safe way to store and grow wealth and borrow to improve their economic situation, and the wider economy suffers because many millions are left out of the mainstream economy and can neither consume high-value products nor use services beyond those that meet the basic needs of daily survival.

This leaves many economies experiencing what can be described as a whirlpool effect: wealth spiralling around small clusters of people – for example those with privileged access to natural resources – but failing to spread across the whole of society. This has the effect of discounting the contribution made by the majority of a nation’s people. That majority is a market that needs tending to, not ignoring, as pioneers like the late C.K. Prahalad (http://en.wikipedia.org/wiki/C._K._Prahalad) have shown.

In Brazil, one major bank has woken up to this fact and is pioneering services for millions of the nation’s “unbanked” (http://en.wikipedia.org/wiki/Unbanked). Even wealthy countries like the United States have large numbers of unbanked people, often those living paycheck to paycheck and with little or no savings. In the US in 2009, 7.7 percent of the population fell into this category (Federal Deposit Insurance Corporation) (FDIC).

Banco Bradesco SA (www.bradesco.com.br) has pioneered reaching the poor and marginalised by opening branches in long-neglected places like the impoverished and crime-ridden shanty town favelas (http://en.wikipedia.org/wiki/Favela) that surround major cities like Rio de Janeiro and Sao Paulo. It is creating a path other businesses can follow.

“Every bank will care about these people eventually,” Odair Rebelato, the executive heading Bradesco’s retail banking outreach programme, told The Wall Street Journal.

According to FEBRABAN (http://www.febraban.org.br), the Brazilian Banking Federation, the number of bank accounts in the country has tripled in the past decade. It has surged from 42 million in 1997, to 126 million by the end of 2008. That still leaves around 50 million Brazilians who do not have bank accounts.

It’s not just poverty that cuts many Brazilians off from banking services – there is also the problem of isolation.

Brazil is home to the largest portion of the vast Amazon rainforest (http://en.wikipedia.org/wiki/Amazon_Rainforest), whose population is spread out in isolated villages reachable only by boat. The capital of Amazonas state, Manaus, is the economic hub of the region but transport links only connect it to major cities and not the region’s many isolated villages.

A solution to both problems comes in the form of Bradesco bank’s Voyager III, a three-deck riverboat converted into a floating bank. Launched in November 2010, the white-and-blue 38 metre riverboat ventures up the Solimões River on a journey to 50 isolated communities in 11 municipalities.

“It was something never seen before in the world – a floating branch,” Nézio Vieira, a Bradesco bank manager in São Paulo, told Monocle magazine. “We are now present in 100 per cent of Brazil’s municipalities.”

Luzia Moraes is a former housewife and now the manager of the Voyager III’s floating bank. The bank offers savings and checking accounts, personal loans and direct deposits. Most of the customers are public servants, pensioners and the poor.

It is a simple operation: a red banner is hung in a cramped former storeroom on the boat. Sitting behind a desk, Moraes has just three tools to offer the full banking services: a laptop computer, a printer and an automated teller machine.

Enterprising and adventures, Moraes even uses canoes and rafts to reach out from the riverboat to even remoter villages.

“Before, there were cases where people would take 10 to 12 hours by boat to get to a bank. It wasn’t worth it,” Vieira said. “To be able to serve these river-dwellers you need to go to them. Today the Voyager goes there.”

The Voyager III has signed up more than 1,000 new account holders by touring the river. It heads off every two weeks from Manaus, reaching as far as a remote town on the border with Colombia and Peru, Tabatinga.

The boat’s computers communicate with a satellite, allowing 24-hour access to the bank’s servers so people can access accounts and apply for loans.

A regional lifeblood, the Voyager III also carries 500 tons of beans, chicken, bleach and other goods to sell on the 1,609 kilometre river journey. The boat can carry around 200 passengers for the trip.

“People don’t know what to think,” Moraes told The Wall Street Journal, “but it’s not hard to explain that a bank can make things easier.”

By David South, Development Challenges, South-South Solutions

Published: May 2011

Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP's South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South's innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.

Follow @SouthSouth1

Google Books: https://books.google.co.uk/books?id=joCYBgAAQBAJ&dq=development+challenges+may+2011&source=gbs_navlinks_s

Slideshare: http://www.slideshare.net/DavidSouth1/development-challengessouthsouthsolutionsmay2011issue

Southern Innovator Issue 1: https://books.google.co.uk/books?id=Q1O54YSE2BgC&dq=southern+innovator&source=gbs_navlinks_s

Southern Innovator Issue 2: https://books.google.co.uk/books?id=Ty0N969dcssC&dq=southern+innovator&source=gbs_navlinks_s

Southern Innovator Issue 3: https://books.google.co.uk/books?id=AQNt4YmhZagC&dq=southern+innovator&source=gbs_navlinks_s

Southern Innovator Issue 4: https://books.google.co.uk/books?id=9T_n2tA7l4EC&dq=southern+innovator&source=gbs_navlinks_s

Southern Innovator Issue 5: https://books.google.co.uk/books?id=6ILdAgAAQBAJ&dq=southern+innovator&source=gbs_navlinks_s

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Indonesian Middle Class Recycle Wealth Back into Domestic Economy

Tuesday, June 23, 2015 at 8:13AM

The global downturn and economic crisis is now into its third year. Economic growth has dropped across the South, as the knock-on effect of shrinking credit and slowing global markets took its toll.

One solution to re-starting growth and building up domestic industries is to target local products at the existing middle class, which in turn grows the middle class by creating better paying jobs.

Globally, 2009 saw 70 million people join the emerging-market middle class, with incomes between $6,000 and $30,000. And 1 billion people are expected to join the middle class by 2020. It has been called “the story of the decade,” by Goldman Sachs’s chief economist Jim O’Neill, who forecasts their global spending power will outstrip the developed world in two decades.

Indonesia’s middle class first began to grow in the 1980s. But rising prosperity took a heavy blow with the Asian economic crisis of the late 1990s, when the currency was devalued, pitching millions of people back into poverty.

Even so, Indonesia’s middle class is estimated to be between 35 and 40 million people (out of a population of 230 million) and they pay out roughly US $750-1000 on monthly household spending.

They are a mix of people, including professionals in management, banking, accounts, specialized law, bio-technology, engineering and other areas – all skills needed to run the market economy.

Like members of the middle class around the world, increasingly affluent Indonesians forge their identity through consumerism and lifestyle. This desire for goods and services represents a huge business opportunity. Often, this is captured by large multinational companies with long experience of selling branded goods and services.

Indonesia, however, is having great success growing its middle class despite the global economic downturn by building up the domestic market. Millie Stephanie, the director of Indonesia Tatler Magazine, told the BBC that two-thirds of the country’s economy runs on domestic consumption.

New middle class housing is springing up around the capital Jakarta. Home ownership for many, unthinkable a decade go, is now possible as banks make more loans possible. This in turn feeds into more consumption.

By turning to local products – something the Indonesian government is encouraging by increasing its own spending on local goods and services in 2010 by US $21.32 billion, according to Industry Minister MS Hidayat – a cycle is created where middle class wealth creates middle class jobs in local companies.

The department store chain of Matahari (http://www.matahari.co.id/) – the largest local department store in Indonesia – is a good example. Eighty percent of the goods it sells are made in Indonesia. The store targets the middle class with products like jeans that Indonesians can afford. And this strategy has helped Indonesia to get through the downturn.

According to Widia Augustinia, who runs the PT Inti Garmindo Persada jeans factory, the company was able to triple production despite the downturn.

“In the last few years we kept getting calls from our clients saying they had sold all our jeans and they wanted more, so we had to expand our business and had to hire more people,” she told the BBC.

One of the factory’s workers, 37-year-old Miriam, has seen her salary increase annually over the last four years while she has worked in the factory. The increasing wealth means she can now educate her children and buy a TV and a motorcycle.

This matters when half the population are living on less than two dollars a day. This recycling of middle class wealth into the Indonesian economy is making more workers become part of the emerging middle class with the jobs created.

In Africa, the Aureos Advisers (http://www.aureos.com/) private equity firm specializes in investing in African small and medium size enterprises, and is having great success with it despite the downturn. Its niche is finding and investing in companies that sell quality local products.

Run by Sri Lankan-born Sev Vettivetpillai, it raised US $150 million in 2009 to invest in Africa, much of it from pension funds.

“That’s a large sum of money in a market where raising capital is tough,” he told The Guardian newspaper.

Leverage was a game when cheap debt was around,” he says of the old private equity market that went up in flames in 2008. “Today a large chunk of growth is in emerging markets and we have proved you can invest responsibly in these markets and achieve attractive returns while paying attention to building sustainable businesses.”

And the faith in small and medium-sized African businesses has been paying off despite the economic turmoil: since most of the companies have little debt, they have not suffered in the downturn. And since many do not export much to Europe or the United States, they have not suffered from the consumer slump.

“When markets crashed 60 percent, good management teams were making sure they had cash, not much debt,” said Vettivetpillai. “Most banks don’t lend to these SMEs. And that has saved a number of those businesses. So we had an upward lift in earning growth in 2008 when many people showed a drop.”