Providing Consumer Credit to Low-Income Populations in Brazil—The Case of Complexo da Penha

Abstract

The financial inclusion (FI) literature claims that expanding access of the poor to consumer credit in the formal financial system is an instrument to alleviate poverty. This view has been increasingly challenged by the financialization literature, which highlights unsustainable indebtedness of low-income borrowers following the introduction of FI policies. While a welcome contribution and antidote to mainstream assessments, much of the financialization literature on Brazil has, to date, focused on a macro-oriented analysis. As a major testing ground for FI, a better understanding of these dynamics in Latin America’s largest country deepens our understanding of the socio-economic consequences of inserting poor populations into the financial system. This paper contributes to the financialization literature by drawing on interviews conducted in a Rio de Janeiro slum to understand how debt dynamics operate in everyday life, along with its structural conditioners. It shows that FI policies provide limited consumption smoothing and instead increase the structural vulnerability of low-income households. Wage and welfare support along with greater oversight and control of financial products supplied to low-income borrowers are warranted.