There is, however, a real threat facing community-based initiatives such as the Mumbuca Bank. Brazil’s oligopolistic banking structure – almost 80% of credit goes through only five large banks – has allowed large banks to invest huge amounts of money in technology. In 2021 alone, around R$30 billion (US$5.6 billion), was invested in fintech incubators and spent on the acquisition of smaller fintechs.
At the same time, an increasing number of Brazilians are taking out individual loans using digital platforms: 2021 saw a 26% increase in the number of loans compared to 2020.13 In 2021, Brazil’s fintechs issued nearly R$13 billion (US$2.4 billion) in loans, which was nearly double the volume of loans registered in the previous year, and a quadrupling of loan volume compared to 2019.14
In addition, Brazil has witnessed quite spectacular growth by a new investor-driven fintech sector.15 By far the most important example here is Nubank. Founded in 2013, it is now Brazil’s largest investor-driven fintech platform with around 45 million clients. Its lower costs, thanks to the lack of physical branches, and backing by deep-pocketed – mainly foreign – investors willing to accept significant initial losses in the hope of eventually creating a hugely profitable monopoly (similar to Safaricom in Kenya, the owners of M-Pesa16), has enabled it to lure a large number of clients away from the largest legacy banks.17
Similar developments elsewhere18 have shown conclusively that a dominant market share will indeed enable a fintech enterprise to extract stratospheric monopoly profits from the poorest communities, which is clearly the strategic, albeit unstated, goal of many of its shareholders and senior managers.
For progressive forces in Brazil, one of the most serious risks associated with the emergence of fintech banks is that they stand to wipe out Brazil’s democratically-managed financial cooperatives and local community-owned financial experiments such as the Mumbuca Bank. The more control investor-driven fintechs gain over local financial systems, the more likely the chance that grassroots democratic financial institutions will be forced out of business.19
Crucially, this risk exists even if local fintech applications are adopted by community-based institutions in an attempt to streamline business and lower costs. This is because their more solidaristic operating methodology, democratic approach and concern for social justice inevitably leaves such financial institutions exposed to the competition coming from the far more aggressive and often unethical business tactics adopted by the new generation of investor-owned fintechs.
While institutions like the Mumbuca Bank are undergoing major changes, they still lag behind many investor-driven fintechs. The risk here is that the millions of reals that Maricá’s RBC basic income programme injects yearly into the local economy will be all too easily drained away by investor-driven digital platforms that offer attractive initial benefits to secure new clients, but in the fullness of time end up over-charging them for the digital services they provide. In the meantime, of course, the competition will have been thinned out and clients reverting to their former smaller financial institution or community-based fintech may no longer be possible if it has been forced out of business.
Another potentially problematic issue concerns the contract signed in 2019 between Codemar, the Maricá government’s development company, and Leonardo, the major Italian aerospace, defense and security company. The aim of the contract is for Leonardo to help develop various technology-intensive small- and medium enterprise (SME) projects in the locality that are linked to the oil and gas industry. The intention is to create many sustainable high skills jobs and raise productivity. However, with Leonardo known worldwide as a major arms dealer and border militarisation contractor20, this connection might prove politically awkward to maintain into the longer-term. A less controversial enterprise development partner might thus be needed in due course.