Valdenor Freitas: Opportunities Through Credit

Posted By: Andrew Downie|Dated: January 12, 2012

Valdenor Freitas came to Sao Paulo 20 years ago to seek his fortune but like many youngsters new to a metropolis he found himself cold and hungry in a run down neighbourhood on the edge of town, with no running water, no electricity and no public transport.

Valdenor Freitas: Opportunities Through Credit

Things were such that when his wife arrived to join him after a 3000-km bus ride from their home in Fortaleza, she took one look and said: “God help me, I’m not living here.” “You had to walk through an open sewer to get here,” she recalled. “When it rained the mud came up to my shins.”

Today, the couple live in their own home, a humble but spacious dwelling that sits above the café-bar they own and run. The street below isn’t paved but the sewer is gone, there is regular electricity and a local bus passes right in front. Across the road is the new supermarket Freitas opened last month.

Life has improved markedly for Freitas and many other Brazilians over the last decade. More than 30 million people were lifted from poverty into the so-called middle class, thanks to generous social assistance programs, minimum wages increases that outpaced inflation, and a consistently growing economy.

But a more specific reason for Freitas’ gains is credit. Brazil’s banks survived the economic crisis unscathed and as standards of living rose they freed up credit. Freitas benefited from loans from Santander. Since 2006, the amount of money Santander has given away in small loans has gone from just 22 million reais to almost 300 million reais.

Freitas used his first loan of 1000 reais in 2008 to buy a freezer for ice cream and cachaça cane liquor for his bar (because it has the biggest mark up). After paying that loan off, he got another and then another and another and today he owes Santander’s micro-credit unit 20,000 reais.

But although the bank’s interest rates are abusive by Western standards – Brazil has the highest interest rates in the world – he has so far managed to pay off his loans. Without them, Freitas couldn’t have reformed his bar, installed a pool table and plasma TV, or opened his new mini-market.

“The loans gave me more stability,” he said. “You have to invest to advance. Money generates money.”

Valdenor Freitas

Brazilian commerce already works on a de facto credit system with most consumer goods paid for in monthly installments. The newly available credit means that big ticket items like cars and houses are now available to citizens who couldn’t have imagined owning them a decade ago.

“Poor people have in their houses the same things that rich people have in theirs,” Freitas said. “I never dreamt of having a car, it was so difficult to even think of that happening. I struggled just to pay my rent. But over the last few years all sorts of doors have opened.”

Brazil’s economy is slowing and inflation is rising but annual growth this year is still forecast to be twice that in Europe or the US. With small loans now readily available, even people like Freitas can share in the bonanza.

About the Author:

Andrew Downie

Andrew Downie fled a factory job in Scotland almost 20 years ago and set off to find adventure in Latin America. Since then he has lived in Mexico, Haiti, and now Brazil, writing and reporting for publications such as The New York Times, Time magazine, Esquire and GQ.  He spent eight years in Rio de Janeiro and currently lives in São Paulo.

The views expressed above are those of the author, and not necessarily representative of the views of the Mahindra Group.

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