Morgan Stanley bets on Brazil’s fintech lending boom
According to Bloomberg, people with direct knowledge of the matter say that Morgan Stanley has bought about $14 million in local subordinated bonds from Geru Tecnologia e Servicos, an online lender to individuals.
This is in the wake of Sao Paulo-based Nubank receiving $137 million line of credit from Goldman Sachs last year. This was in addition to its equity capital of $330 million.
Goldman Sachs has also been busy outside of Brazil. A few days ago, Apple and Goldman Sachs were planning to launch a new credit card as early as next year; and UK online broker Trussle got £13.6 million in Series B funding from Goldman Sachs and Propel Venture Partners.
In terms of the Brazilian start-ups, digital start-ups are springing up to challenge the big banks.
About 210 such companies are operating in Brazil, the most in Latin America and a surge from 54 at the start of 2015, according to a Goldman Sachs report in May 2017. Those ventures are fighting banks for a revenue pool Goldman Sachs says could reach about $75 billion in ten years, across banking and insurance markets.
In March, Geru started to offer payroll loans, in which payments are deducted directly from pay cheques, in a partnership with BNP Paribas SA’s Banco Cetelem consumer-credit unit.
Bloomberg explains that helping to finance the start-ups can be lucrative for the banks. The Geru bonds, issued in December with a four-year maturity, pay 175% of the interbank rate DI, or around 11.2% annually. That’s a better return than available on, for example, four-year bonds sold last month by Brazil’s Raia Drogasil, a pharmacy chain, which pay about 105% of the interbank rate.
According to the sources, Geru is also raising capital and talking to international investors for a $50 million equity round. The stake sale is being coordinated by investment firm QMS Capital, which already has a 10% stake in Geru. General Atlantic is among investors considering an acquisition.
It’s not only Morgan Stanley and Goldman Sachs being active in Brazil.
Santander InnoVentures, the fintech venture capital fund of Santander Group, made its first investment in the country in April via digital lending platform Creditas.
In February, mobile lending start-up Airfox unveiled its free Android app in Brazil as it targets the nation’s unbanked market.
While last year, the Central Bank of Brazil was eyeing up new regulations to oversee and assist fintech firms across the nation.