Low-Cost Credit for Low-Cost Items explains the booming market for selling to the “bottom of the pyramid” in Brazil:
Ms. da Cruz, who lives in São Vicente, a coastal town an hour’s bus ride from São Paulo, made a purchase in September equal to one-fifth of her monthly salary. She bought three irons — one for herself and two as gifts for her mother and sister — for 72 reais, or just over $32.“It was a big purchase,” she said. “I normally couldn’t pay for it.”
She could, though, because of a new policy at CompreBem, a supermarket chain owned by Grupo Pão de Açúcar, Brazil’s biggest retailer. The plan allows her to pay for the purchase in 10 interest-free monthly installments of about $3.20 a month.
Big retailers in Brazil are lowering the bar for what they will sell on credit. Though the country’s shops and department stores have long sold big-ticket items on installment plans, Brazilian and multinational retailers, like Wal-Mart Stores and Carrefour of France, have begun offering purchase plans with monthly payments that come to no more than one or two reais — about 45 to 90 cents.
Why are they just now offering credit to the poor?
Brazil’s erratic economic history made it a long slog for retailers to reach this market. Expensive credit — Brazil still boasts the highest real interest rates in the world — kept most low-income consumers from seeking loans. And years of runaway inflation meant stores were able to offer few affordable payment plans.But economic changes in the last decade helped curb inflation and laid the groundwork for what many economists believe is a nascent period of prolonged, if modest, growth. After years of stagnation, Brazil’s gross domestic product in 2004 grew by 4.9 percent, the quickest clip in a decade, and is expected to grow by more than 3 percent this year.
Slower inflation enabled stores to introduce payment plans for retail goods that many consumers once strained to finance — from tennis shoes and televisions, to refrigerators and home computers.
(Hat tip to Virginia Postrel.)