Brazil | Private Payroll; Rate Caps, a Game-Changer

Research evidence excerpt

Brazil | Private Payroll; Rate Caps, a Game-Changer

ectly through a financial institution's own

channels must be backed by collateral covering at least 50% of the loan amount. By contrast, loans Exhibit 3 - Brazil: Change in MS at selected

players in privatepayrolls (%)

originated through the CTPS Digital platform must be fully collateralized (100% of loan value). 15%

3) Imposition of hard interest rate caps | The government has now imposed a hard interest rate 10%5%

cap of 1.99% per month (c.27% per year) in the event collaterals are pledged, at both origination 0%

channels. This is materially below current market pricing in the new private payroll loan segment, -5%

where origination rates stand at 3.8% per month (c.56% per year). As a result, the cap significantly -10%

limits lenders' ability to price for risk, potentially constraining credit availability for higher-risk -15%

-20%borrowers and reducing incentives for product expansion, even as the minimum 50% collateral

lowers expected losses.

.

Source: Jefferies estimates.

Our initial reading | The regulator appears to have prioritized low borrowing costs over maximizing

market penetration. While the 1.99% monthly rate cap provides regulatory clarity and should support

adoption among lower-risk borrowers, we remain skeptical that the market can approach the

BRL300–400bn opportunity suggested by some participants under the current pricing framework.

At these rates, lenders are unlikely to adequately serve a meaningful portion of higher-risk

borrowers, constraining the addressable market. The product is likely to gain the greatest traction

among long-tenured employees at large corporates, where credit risk is lower, and payroll deduction

mechanisms are more robust.