Brazil's fintechs feel coronavirus sting, in government funding talks

SAO PAULO, March 26 (Reuters) - Brazilian financial startups are in talks to obtain funding and possibly new business from development bank BNDES or similar institutions now that their usual financing channels have dried up due to coronavirus-linked market ructions, an industry group said.

ABCD, an association of Brazil’s digital lenders, said it is also discussing the possibility that the central bank will provide incentives to banks to provide funding for fintechs.

“We’ve been discussing some alternative plans, such as having BNDES or other public banks providing funding for fintechs’ lending during the crisis,” ABCD head Rafael Pereira said in an interview late on Wednesday.

ABCD’s members include SoftBank-backed lender Creditas, payments company StoneCo Ltd and MercadoLibre Inc ‘s financial unit Mercado Pago.

Brazilian fintechs normally finance their businesses mainly through securitization deals in the capital markets.

“Now it is impossible to use securitization because the capital markets are closed amid the coronavirus outbreak,” Pereira said. New funding rounds with venture capital funds are also very unlikely in the coming months, he said.

BNDES also may give the fintechs new business by allowing them to distribute credit lines to small companies, which would have the advantage of being completely digital at a time when countries around the world are trying to limit personal contact to stop the spread of the highly contagious coronavirus.

“Fintechs are able to reach families and small-companies without physical contact,” Pereira said.

Brazil’s central bank said it has been analyzing all requests for assistance to cope with the market effects of the coronavirus outbreak, but declined to comment further. BNDES did not immediately respond to a request for comment.

A source confirmed the talks with BNDES were taking place but asked not to be named because the discussions are private.

Brazil’s central bank has been working to promote more competition in the country’s financial sector, in which the top five lenders hold 82% of total banking assets.

On Monday, the central bank said it planned to inject 1.2 trillion reais ($233.81 billion) into Brazil’s financial system - mostly banks - to counteract the effects of the coronavirus.

There were more than 600 fintechs in Brazil as of June 2019, according to a study by Fintechlab. (Reporting by Carolina Mandl; Editing by Christian Plumb and Sonya Hepinstall)