In Long “Overdue” Step, Brazilian Bank Initiates Favorable Lending to IT Innovators

BNDS_lending_Brasil
Coutinho of BNDES: Innovators can seek up to $50 million in credit

By Filipe Pacheco

Until a year ago, Brazil was known as one of the worst places in the world to get a business loan – given the seemingly punitive terms many lenders offered.  For decades, the country has kept interest rates high in an attempt to fight rising inflation and protect the value of its currency – the real. But now the business financing market is changing for the better, with the country’s state-run bank BNDES (Banco Nacional de Desenvolvimento Econômico e Social), deciding to accelerate lending to local industries, including IT companies and foreign entrepreneurs in the country.

Speaking at a public function recently, BNDES’ President Luciano Coutinho said the bank would henceforth finance innovative projects of companies in wide ranging industries, including information technology, renewable energies, aeronautical, aerospace and defense.  According to a local newspaper O Estado de S.Paulo, the bank has set aside as much as US$ 10 billion to support innovation.

Analysts say such a lending program by the bank was long overdue.  Interest rate in Brazil rose to a record 12.5 percent in 90s as the Brazilian Central Bank intensified its fight against inflation, which was a matter of grave concern for Latin America’s biggest economy. Maintaining the value of the local currency, the Real, was another challenge faced by the banking regulator. Until a few years ago, inflation was rising at such a speed that households would find it tough to budget their spending beforehand.

Inflation and Interest Rate

Interest rate in Brazil remained well above 12 percent until the first half of last year, while most part of the developed world, like the US, the euro zone and Japan kept their rates close to zero. The economy suffered a heavy blow as entrepreneurs – from mobile software creators to bio-fuel innovators – put off their spending and stayed away from the credit market.

“Getting funds for projects or a new company has always been a challenge due to the high borrowing cost,” said a local IT entrepreneur preferring not to be identified. That is, in fact, a common complaint often heard from business executives across the country.

When Dilma Rousseff became the president, she vowed to bring down the interest rate and prevent the economy from sinking further. “We need to have interest rates of normal countries,” she said over and over again. In the year 2011, the Central Bank cut the rate almost in half to 7.25 percent, deflating the tension in the money market. The interest has since been cut repeatedly and today it stands at 5.5 percent. “This is a much better scenario, but alternatives are still necessary,” said the source.

BNDES has so far played a pivotal role to protect the local industries from the effects of high interest rates. With US$ 312.5 billion in assets, the state-run bank has remained a main driver of the credit market, lending loans to local industries.

Propping Up Startups

BNDES’ chief stated that the bank would finance projects taking into account the project’s innovative nature and its possible impact on the country’s economic growth.

According to him, boosting innovation was vital to attract foreign investment and prop up the economy as a whole. Companies in wide ranging industries, including information technology and telecom, would benefit from the lending program.

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According to reports, BNDES has also drawn up plans to give seed money (or capital) to technology start-ups with innovative projects to work on. Under this new program, the state-run bank would lend funds up to US$ 50 million to startups. The bank has been flooded with applications seeking seed money. According to reports, BNDES has received application from as many as 1500 startups.

The bank, reports say, is in the process of launching similar programs in the coming days.