Brazil’s government has announced new regulations to expand payroll-deductible loans for private-sector workers through the country’s digital work card app. This initiative aims to provide domestic and rural workers with access to lower-cost credit.
President Luiz Inácio Lula da Silva stated that the measure comes at a time when his popularity has sharply declined in opinion polls and is expected to increase loan accessibility. The initiative seeks to extend payroll loans to workers under the Consolidation of Labor Laws (CLT) regime.
According to the government, the system will launch on March 21 and is designed to reduce excessive debt by offering a lower-cost credit line for refinancing more expensive obligations.
While payroll-deductible credit has previously existed in Brazil, the government’s economic team argued that it failed to reach a significant portion of formal workers due to its reliance on agreements between companies and banks.
The new system is expected to benefit up to 42 million people. Lula’s plan aims to triple the current payroll loan volume for private-sector workers from R$40 billion ($6.45 billion) to R$120 billion ($19.35 billion).
Additionally, the government has proposed developing a digital platform to connect banks directly with workers’ credit profiles through the eSocial system. This streamlined approach removes the need for company-bank agreements, making loans more accessible.
Under the proposed system, workers can allocate up to 30% of their salary to loan repayments. They may also use 10% of their Severance Indemnity Fund (FGTS) balance as additional collateral.
However, estimates from the banking industry group Febraban, released by the government, suggest that the new system could generate up to 120 billion reais ($20.6 billion) in loans over four years, potentially benefiting around 19 million formal workers out of a total of 47 million.
