Priya PatelTLDR:
- Delinquency rates on unsecured loans offered by Brazilian FinTech firms like Open Co, Nexoos, and Gyra+ have exceeded 60%, impacting the asset-backed credit market.
- The high delinquency rates are attributed to Brazil’s sluggish economic growth and high interest rates.
Brazilian FinTech firms are facing a crisis as delinquency rates soar, leading to a surge in loan defaults and impacting the asset-backed credit market. Companies like Open Co, Nexoos, and Gyra+ are experiencing delinquency rates exceeding 60%, prompting measures such as mergers, downsizing expansion plans, and asset sales. The delinquency rates in the FinTech FIDC market have risen to an average of 9.5% in January, a significant increase from 3.5% six years ago. This increase is largely attributed to Brazil’s slow economic growth and high interest rates, which have reached double digits. Despite the challenges, the overall FIDC market in Brazil has been growing, with FinTech FIDCs witnessing a 25% growth in the year leading up to January.
FinTechs, which aimed to democratize lending in a country historically challenged with credit access, are now facing difficulties as clients prioritize repaying traditional banking institutions. The lack of traditional debt collection mechanisms and the newness of many clients to credit make prediction and preparation for defaults challenging for these FinTechs. The ripple effect of the defaults extends beyond the FinTech industry, impacting the broader FIDC market, a vital financing source for small businesses in Brazil. With 40% of adults in Brazil at risk for debt defaults and household debt near record highs, the government raising interest rates is putting pressure on businesses and the local debt markets. Despite these challenges, the FinTech industry in Brazil continues to evolve and adapt to the changing landscape.
