Brazil is at the forefront of a digital transformation in trade finance that is set to revolutionize how small and medium-sized enterprises (SMEs) engage in cross-border business. By leveraging the intersection of technology and international trade, Brazil is breaking down longstanding barriers that have historically hindered smaller businesses from accessing global markets.
Small and medium enterprises (SMEs) account for 93.7% of all legally constituted companies in Brazil. Despite their significance, these businesses face persistent challenges in accessing trade finance due to fluctuating interest rates and structural disparities in financial markets. High interest rates, reaching up to 14.25% between 2013 and 2016, have made it difficult for SMEs to secure loans, leading to most being excluded from the financing market.
Government programs like Pronampe and PEAC provided a temporary increase in lending to SMEs between 2016 and 2021. However, regulatory reforms have been implemented to support SMEs through improved protections for investors and a requirement for financial institutions to allocate a percentage of demand deposits to micro-entrepreneur loans. Despite these efforts, interest rates have again risen since 2021, making loans inaccessible to SMEs and perpetuating the trend of large corporations receiving a disproportionate share of business loans.
The challenges faced by SMEs in Brazil, including high borrowing costs, limited access to credit, and structural market disparities, create significant barriers in leveraging trade finance. The disproportionately high interest rates on loans for SMEs compared to large corporations limit their ability to engage in competitive trading and hinder their access to working capital, raw materials, and covering shipping and customs costs.
Brazil’s commitment to digital transformation is evident in its investment of 186.6 billion reais (£24.4 billion) to propel its industrial sector into the digital era. This investment, financed by a mix of public and private capital, targets technological domains such as semiconductors, industrial robotics, artificial intelligence, and the Internet of Things. The country aims to position itself as a key player in international trade by establishing a robust semiconductor manufacturing ecosystem and leveraging initiatives like the DREX project, a digital currency initiative launched by the Central Bank.
Digital solutions are emerging as key enablers for SMEs to unlock their international trade potential. By operating on digital platforms, SMEs can expand their trading options, streamline processes, and access tools previously available only to large corporations. The shift towards digital trade platforms not only enhances efficiency and transparency but also provides SMEs with the opportunity to compete on the global stage.
As Brazil continues to invest in digital trade infrastructure and embrace technological advancements, the country is poised to reshape the global trade ecosystem. By reducing barriers, increasing transparency, and providing sophisticated tools, Brazilian SMEs are leading the way in the digital trade revolution. The future of trade is digital, and Brazilian SMEs are set to benefit from this transformative journey.