The Central Bank of Brazil’s (BCB) Governor, Roberto Campos Neto, announced a BRL 40 billion emergency aid in order to support the payroll costs of micro, small and medium-sized enterprises’ (SME). The financing will be released in two tranches of BRL 20 billion — 85% of which comes from the National Treasury  (BRL 17 billion, through the Brazilian Development Bank – BNDES‘ on-lendings), and the remaining 15% will be funded by banks (BRL 3 billion).

Beneficiaries

Companies with gross revenues between BRL 360 thousand and BRL 10 million per year — the so-called small and medium-sized companies (SME) — will have access, for two months, to an emergency payroll financing line. The measure has the potential to reach 12.2 million employees and 1.4 million companies.

Criteria

1. The maximum amount financed per worker will be two minimum wages (BRL 2,040) per month.
2. The funding will go directly to the worker’s account, as happens today through payrolls operated by financial institutions. The company will be responsible for the debt.
3. The company that request the payroll loans will be committed to the maintenance of jobs during the two-month program;
4. The cost of the financing program to SMEs will be exactly the Interbank Deposit Certificates’ (CDI) interest rate, currently at 3.75% p.a., which means that the payroll financing line’s spread is zero;
5. Regarding the credit risk coverage, the federal government and banks will share, respectively, 85% and 15%, of each transaction;
6. The maturity of this emergency aid will be 36 months, with a grace period of six months.

Legislation

The loans will start to be granted after the issuance of a Provisional Measure that will provide for an ‘extraordinary credit’ of BRL 34 billion and the creation of a fund operated by the BNDES, which will be supervised by BCB. The financial institutions will fund the remaining BRL 6 billion.

Additional initiative in progress

The BCB’s governor also announced that the monetary authority is preparing a draft proposal of a constitutional amendment that will allow BCB to purchase corporate debt securities directly from companies —  analogous to procedures adopted by the U.S. Federal Reserve.