Debt and Reputational Collateral on the Fringes of Brazil’s Credit Economy

2019 was a significant year in the banking history of Brazil with record-setting profits. A surge in consumer debt, including credit card debt, was among the drivers of this growth, while the economy was on the brink of another recession. To attract low-income clients, the largest banks have formed partnerships with retailers and supermarkets to provide credit cards that enable the poor to circumvent bank bureaucracies. Such financial products blur the boundaries between retail, shopping, business, and financial services, which is characteristic of the consumer credit industry that has increased the availability of unsecured credit for the poor through ‘fringe’ banking and credit services.[i] The inclusion of people who live on the margins of the city and the formal economy in the global credit industry has been a source of massive profits for the industry, also when people are unable to pay their debts. In 2019, nearly 80 percent of lower income families set up credit cards.  

In my current work, I am interested in how the credit industry targets the poor, and women in particular, for microcredit and unsecured consumer credit. As for the latter, women are likely to use credit cards to purchase food, clothes and domestic appliances as they are responsible for taking care of the household. It is precisely the stores that offer such products which have partnered with banks to offer credit cards, making retailers the major issuers of credit cards in Brazil.

The credit limit may be as low as 200 BRL (approx. 37 USD) on these cards. A bank account is not required, and applicants do not have to document their income or residence, and they do not necessarily need to be debt free. This makes all the difference to the families I have befriended in my fieldwork in the city of Salvador in communities where people juggle debt every day – and many of them struggle with unpayable debt.

Approximately half of the households are female headed, such as Paula’s. She was excited when she got her first credit card. She applied for it in a nationwide clothing store in the centre of the city. She was able to get the card the same day, and had bought some clothes for her partner’s young grandchild before returning home. The excitement, however, was short lived. She told me: “My mistake was to share my happiness with everybody. Soon people came and asked to buy things on my card, and they bought a lot of clothes and never paid me back”. Paula later got a new card, and a one point, she had five credit cards, all of which eventually became ‘worthless’, as she said, meaning that they were maxed out and she gave up on paying the debts.

A dirty name

Since the sixties, economic anthropologists have studied rotating savings and credit associations that people join to access credit for investments in businesses, or important life cycle events like weddings and funerals.[ii] In Salvador, the women pursued a more individualistic approach. They use credit cards to pay for a son’s funeral, food missing in the house, or to buy materials for income generating activities for a tiny profit margin, such as beverages to sell at the annual street carnival. If their credit cards were maxed out and their applications for a new credit card was rejected, they tried to borrow someone else’s card – a relative, neighbor, friend, or a patroa (employer).

This is part of a practice called “name lending”, where a person obtains credit in the name of someone who is creditworthy, by borrowing their credit card, or e.g. purchasing items in instalments in that person’s name. The name lending practice entails a risk of getting stuck with other people’s debt and losing one’s own access to credit, if the money is not paid back on time or not repaid at all, as it happened to Paula. When her name was dirtied, she had to seek out people with a so-called ‘clean name’ herself.

To dirty one’s name, as it is called in Brazil when people are marked as bad payers, may well complicate their access to credit, which they have come to depend on. In Salvador, various types of credit finance daily necessities, income generating activities as well as people’s ability to “progress in life” as they say. Such personal progress, among other things, is envisioned through the gradual improvement of their home and is largely undertaken by credit-based consumption.

Reputational collateral

Collateral is not requested for store issued credit cards, or when borrowing someone’s name. The person making the credit request does so not against any material assets, but against their reputation as a good payer. The credit industry and intermediaries of debt in the community rely on a ‘reputational collateral’ as an incentive for debtors to meet their commitments.

Contrary to lay perceptions and academic literature on the importance of paying ones debt, I have been surprised to find that while people are well aware of their obligation to pay their debt, for various reasons, they sometimes do not. This empirical finding is supported by statistics provided by one of Brazil’s credit bureaus, showing that in January 2019, more than 62 million Brazilians were registered with a delayed account and had ‘dirtied their name’. This represent 41 percent of the country’s adult population.  

In the name lending scenario, both persons are left with a dirty name. And thus with a damaged credit record: in one of the credit bureaus’ registries and within the community for the person who ‘borrowed the name’. I have found, however, that in some situations people are willing to risk their reputation in the community and in the credit industry. A local vendor and resident also told me: “people prefer to buy on credit and some people buy with cruelty with the intention of not paying”.

Debt as cashlessness

In this part of Salvador, digitized payment devices such as credit cards do not operate as a cashless infrastructure the way it works for the more affluent population who pay their credit card bills online. Debt payments are settled in cash. When people fail to settle their debts for goods already obtained, these exchanges become cashless. I have observed that this withholding of cash forged exchanges in which people obtained goods without cash at hand. Groceries, clothes, phones, perfume, ceramic tiles and domestic appliances are bought on credit at stores across the city, from local vendors, by using a credit card or someone else’s credit card, and left unpaid. Water and electricity are also goods that are commonly consumed and not paid for.

In this scenario, cashlessness is not the replacement of paper money with e-money. Nor is it cashlessness as cash scarcity that anthropologists have documented due to demonetization, or economic collapse. Or due to the prohibition of money that occurs in prisons, where cash is replaced with cigarettes or ramen noodles. By not settling these debts, the exchanges become cashless from the perspective of the person who gained or consumed a commodity without paying. Some managed to do so without significantly damaging their reputation by gossiping about the person who extended the credit – who in the end suffered the reputational collateral the most on top of getting stuck with even more debt.

[i] Allon, F. (2014). The Feminisation of Finance: Gender, Labour and the Limits of Inclusion. Australian Feminist Studies, 29(79), 12–30. https://doi.org/10.1080/08164649.2014.901279

Lavinas, L. (2017). How Social Developmentalism Reframed Social Policy in Brazil. New Political Economy, 22(6), 628–644. https://doi.org/10.1080/13563467.2017.1297392

[ii] Schuster, C. (2015) Social Collateral: Women and Microfinance in Paraguay’s Smuggling Economy. Oakland: University of California Press.