Excessive rates of interest and problem in saving ‘push’ Brazilians to the consortium

Excessive rates of interest and problem in saving ‘push’ Brazilians to the consortium

Large banks ‘rediscovered’ the product, and marketed shares grew 12.1% between January and June

Large banks have “rediscovered” consortia and are boosting sales of the product, which is a kind of “organized crowdfunding”, a Brazilian invention that turns 60 and is used to buy everything today.

As a result, 1.85 million shares of the product were sold between January and June, up 12.1% compared to 2021, according to the Brazilian Association of Consortium Administrators (Abac).

There are consortia of various types of products and services, from real estate, vehicles, tractors and drones to even plastic surgery, and with the impetus of the product, sales in the first semester had the best result in ten years.

Edna Maria Honorato, chairman of the entity’s board, says that the growth is the result of high interest rates on financing (direct competitor of the consortium), the advancement of financial education and the fact that several banks have entered this market in a more assertive way.

‘Grow down’

The country’s five big banks — Banco do Brasil (BBAS3), Bradesco (BBDC4), Caixa Econômica Federal, Itaú Unibanco (ITUB4) and Santander (SANB11) — have shown greater appetite for the consortium, with campaigns showing the benefits, sponsoring events, making sweepstakes, starting to operate in new segments and extending deadlines.

“Before, the way that banks sold consortiums was very down the throat”, says Pablo Alencar, director of the brokerage firm Valor Capital. He says that the client was going to do another operation and ended up taking a consortium.

Alencar also says that when banks started to lose revenue from services because of fintechs and Pix, they sought compensation – and the consortium was one of the ways. He considers that the “banks” were already very well positioned in the sector, but they saw that the consortium was underused.

High interest rates and indebted consumers

This occurs at a time when the basic interest rate is at its highest level in recent years (13.75% per year) and when Brazilians are in debt or in default and are having difficulty obtaining financing. “It’s the perfect storm for the consortium”, says the director of Valor Capital.

Industry leader and 19 years in the market, the Bradesco for the first time, it started to raffle a credit of R$ 200 thousand among those who bought shares. “We intensified the media even more because of the high Selic rate and to present the consortium as a solution”, says the director of the area, Henrique Fernandes.

Bradesco’s sales grew by 15% in volume in the first half. already the Santander expanded sales by 37% and the segment’s superintendent at the bank, Claudia Sampaio, says she is “stepping on the accelerator”. For this, the bank invested in the digital channel and will sell plans at dealerships.

The consortium has gained so much relevance for the Itaú Unibanco that the bank has just launched an advertising campaign on open TV and on social networks to clarify doubts.

to Magalu

In addition to the great appetite of banks for consortia, independent administrators have advanced in the sector, with an eye on the appetite of Brazilians for higher added value goods. The Magalu consortium (MGLU3), for example, grew 51% in sales in 2021 compared to 2020. In 2022, Edna Maria Honorato, the executive director of the area at the retailer, says that the segment that grew the most was services.

The accountant Léia dos Santos, for example, sought for the first time a consortium of services to pay the procedural costs of her retirement. To cover the fees, she needed R$8 thousand.

Leia says she turned to banks, but couldn’t get the loan because she was a freelancer and the way out was to join a consortium. To obtain a R$8 thousand letter of credit, she entered in November in a group of 36 months, with installments of R$236. In July, she placed a bid and obtained the letter of credit. “I think it is advantageous, if there is no urgency. And it is possible to anticipate the loot by bidding.”

No discipline to save

The accountant says she doesn’t have the discipline to save money (and she’s not the only one who faces this obstacle). Brazilians find it difficult to save, both due to lack of financial education and insufficient income.

And that explains the success of the consortium. “Brazil is one of the few countries in the world that has a consortium because it lacks financial education: people need a bank slip to be able to save money”, says Alencar, from Valor Capital.

Attracted by the ease of making a “forced savings”, which will be the passport to fulfilling a consumer dream, many buy a consortium without knowing exactly where they are stepping and without comparing the conditions of the contract with those of a financing.

Consortium pranks

In practice, it is not possible to say that the consortium is better than financing — or vice versa. It all depends on the analysis of the variables involved at the time of purchase of the good or service (and the objectives of those who acquire it).

It is important to keep in mind that, in financing, the good is received immediately; in the consortium, it depends on luck (drawing or a bid). But the important thing is to know the “gotchas” of the consortium to make the best choice.

The first point is to keep in mind that a consortium is not an investment, but a programmed purchase. The central argument in favor of the consortium in relation to the financing is that there is no interest, but, in addition to the administration fee embedded in the installment, the consortium member has to pay a reserve fund, used to cover default, and the annual correction of the monthly fee. by an index.

Therefore, those who join the consortium must be aware that they are making a payment commitment at a post-fixed rate. In the case of financing, where interest is charged, the installment does not vary. Soon, only the comparison between the consortium administration fee with the monthly interest of a financing is not enough to know which is the best alternative.

The recommendation is to calculate the Total Effective Cost (CET) in both cases. In the consortium, the CET is composed of the management fee, the reserve fund and the projection of the correction index. In financing, interest and registration fee are included. Depending on the interest and inflation index for correction, the CET may vary and affect differently the costs of consortia and financing.

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