High interest: Brazil's consumer-credit business is getting ready to boom.

Author:Ogier, Thierry

Money for nothing? You bet. Hordes of youths in flashy uniforms compete to catch the attention of pedestrians in downtown Silo Paulo. They seem to belong to rival gangs, down to the odd-sounding street names. Tatiana, a 20-year old saleswoman dressed in an orange-and-green jogging suit, is a member of the Tail sales task force. Just like dozens of her colleagues, she's chasing cash-starved customers for consumer-credit institutions looking to charge a lucrative 6.9% in monthly interest.

The traditional path to credit--paying by installment--isn't cheap, thanks to stratospheric interest rates, but for many Brazilians it's the only way to have a sense of comfort at home. "My sofa, TV, sound system. I bought everything at Casas Bahia," says Ze Souza, a 34-year-old waiter who frequently shops at the popular retail chain. He does not mind paying the interest as long as he manages, he says, to drive a good bargain. When Souza heard that Casas Bahia had struck a deal with Banco Popular, the consumer-credit arm of the state-owned Banco do Brasil, he had no doubts. "If there's something like this, I'll go for it" he says.

Within the past 18 months, household names in world banking such as the U.K.'s HSBC and Citigroup in the United States also have moved into this potential growth area to compete with increasingly strong domestic competitors Raft, Bradesco and Unibanco. Big banking groups have acquired several independent consumer-credit institutions, such as Losango and Finasa, in order to boost their funding capabilities.

HSBC, which took control of Losango when it paid US$815 million to acquire the Brazilian subsidiary of Lloyd's TSB in October 2003, has big plans. Bank executives expect consumer credit to grow five times faster than the overall economy, which is forecast to increase by 3.8% this year. "Losango is now backed by a large retail bank in Brazil. Lloyd's did not have such a distribution network," says Leonel Andrade, president of Losango, which has a portfolio of 15 million customers. In August, HSBC invested a further US$125 million to buy a smaller institution, Valeu, from Banco Indusval Multistock.

Itau, Brazil's second-largest private bank, lost the bid for Losango to HSBC. It instead has invested on two fronts: It launched its own, new consumer-credit institution, Tail (which means "seeds" in the indigenous Tupi-Guarani language) to offer loans to the poor. "We really want to be and look different. We are happy, close, friendly...

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