In February 18, 2004, the United Nations, under the direction of the General Assembly, declared 2005 as the International Year of Microcredit, acknowledging the importance of this financial segment in provision of funds to low income populations in different countries of the world.

This is one of the reasons by which the 2004 Yearly Report on the Development of the National Financial System keeps focusing on the microfinance segment. The other reason is that expectations on the impact of measures taken by the Brazilian Federal Government and Central Bank are maintained with a view to foster the development of this segment in the financial system.

In this context, important measures were put into practice by Law no. 10,735, of September 11, 2003, by which financial institutions shall allocate 2% of their demand deposits towards microfinance operations under the conditions it establishes, regulated by Resolutions no. 3,109, of July 24, 2003, 3,212, of June 30, 2004 and 3,229, of August 26, 2004, and later broadened by Provisional Measure no. 226, of November 29, 2004, currently contained in Law no. 11,110, of April 25, 2005, establishing the National Program of Oriented Productive Microcredit (PNMPO).

Simultaneously, the strategies put in place in the remaining segments of the National Financial System (SFN) by different financial conglomerates, especially banks operating with commercial portfolio, to leverage positions in market niches such as loans, both personal loans and consumption loans, proved to be very innovative. Several institutions competed fiercely for significant shares of the demand for credit, in particular through the so called consignation loans, the repayment of which is made my installments debited to the consumer’s paycheck, as well as by the offer of consumption loans, mainly through associations with networks of retail shops.

Summarizing, in 2004 SFN was not sufficiently impacted so as to alter its structure and even less its growing path. In this sense, the performance of institutions operating in different SFN segments attested for the System’s vitality and strength, where the dispute for markets was present under the adequate standards of healthy competition.

I. STRUCTURE OF THE NATIONAL FINANCIAL SYSTEM – STN AND EVENTS OF 2004

A. Structural improvements of SFN

The 2004 events failed to cause any deep changes in the structure of STN during that year. The most significant change in the period was in fact a result of the wider range of alternatives for credit granting in the financial system by the end of 2003, when consignation loans became regulated, analyzed in topic II of this paper. This way, the events of 2004 ‑ authorizations and cancellations of authorizations to the operation of new institutions; transfers of institutional control; acquisitions among institutions; mergers (mostly amalgamation of institutions acquired in previous years); opening of new offices to the public in general; among others – may be explained by the natural dynamics of the system as merely vegetative changes.

In this sense, one may assure that the financial system is still in a process of consolidating the great changes experienced in recent years, resulting from an institutional restructuring of the Brazilian economy at the end of the nineties and beginning of the new century. One may currently see a wider segmentation of large sized institutions, a process by which an institution becomes organized in different specialized segments according to the market niches where it operates – a bank inside the bank –, including mergers of institutions acquired in previous years; strengthening of middle and small sized institutions in their respective niches of operation – retail and wholesale; and, above all, assimilation of structural impacts in institutions, caused by changes in control, scale increases resulting from acquisitions, organizational growth stemming from larger operating portfolios – in case of multiple banks – or network of offices; and even accommodation to regulatory changes introduced in the process of authorizing for operation.

Appendix 1 lists the main events of 2004. Among the events involving different SFN segments, the most evident are those affecting banks and credit cooperatives.

For banks, the relevant events in 2004 were the transfer of control – or simply control acquisitions –, establishment of new branches and the hiring of new correspondents in the country. Regarding transfer of control, the most important ones involved the acquisition of Banco do Estado do Maranhão by Banco Bradesco S.A. – within the privatization program –, of Banco BNL do Brasil by Unibanco – União de Bancos Brasileiros S.A. and acquisition of the institutions belonging to the Banco Sudameris do Brasil S.A. conglomerate by Banco ABN Amro Real S.A. The operations were also analyzed in what regards concentration of the financial system, when a conclusion was reached that they were no detrimental to competition among financial institutions.

Regarding the widening of branches network, the number of new dependencies authorized to operate was expressive in 2004. The bank segment was the most representative. From a total of 2,107 branches authorized to operate during 2004, 2,096 were bank branches. In the period, 6,752 correspondents in the country were authorized – subsections (I) and (II) of Resolution no. 3,156, of December 17, 2003 –, disregarding the hiring of correspondents that are not subject to Central Bank authorization, what stresses the importance assumed by such mode of service to the population in recent years. However, though the network of correspondents increases faster than the number of branches, they provide services that are structurally different and non exclusive of each other.

The segment of credit cooperatives was the first in vegetative dynamics, recording a large number of institutions authorized to operate, cancelled, incorporated and liquidated. There was a significant number of new credit cooperatives authorized to operate. However, the larger number of those whose authorization to operate was cancelled brought their number down from 1,447 to 1,436 between 2003 and 2004. The changes brought about by Resolutions no. 3,058, of December 20, 2002, no. 3,016, of June 25, 2003, and no. 3,140, of November 27, 2003 in the regulations applicable to the operation of credit cooperatives have not yet produced their full potential effects. Such regulations created new types of institutions in the credit cooperative segment ‑ microentrepreneurs, micro and small entrepreneurs, large entrepreneurs and free admission of members credit cooperatives – in response to sectoral demands, at the same time they made the process of authorization more strict. The expectation, in this sense, is an increased demand for authorization of new business ventures in the years to come.

Summarizing, the vegetative movement of 2004 failed to result in any important change in the number of institutions within the National Financial System. The different segments experienced slight changes in their numbers, as reflected in Chart 1.

B – Geographical distribution of SFN institutions

The geographical distribution of SFN institutions, except buyer purchase association administrations, reflects the economic activity concentration in the country. The Southeastern Region, with 59% of institutions, kept the status of the country‘s financial center, followed by the Southern and the Northeastern Regions, with 20% and 10%, respectively. Broken down by Federative States, larger concentrations were recorded in São Paulo (32%), Minas Gerais (15%), Rio de Janeiro (10%) and Rio Grande do Sul (8%). The distribution is basically the same of the previous year, with a small relative 1% increase of the South against the Southeast.

Among recent events that impacted the SFN performance, the most important was the process of privatization of state public banks, an initiative that might affect the geographical distribution of financial institutions, increasing the concentration. The reason was that, for some time, one speculated on the excessive number of public bank branches in the Northern and Northeastern Brazil. It was said that the public bank‘s branch network was unnecessary and costly. In this sense, it was feared that the privatization process would close bank branches in that Regions and could increase the concentration of branches in the South and Southeast to a level higher than the then current one.

However, the handing over of state public banks to private control did not reduce significantly the network of bank branches in the North and Northeast. Especially during 2004, the changes in numbers of institutions, both related to their types and areas of action, failed to reflect changes in their distribution over the Brazilian territory, as evidenced by Chart 3.

The privatization of Banco do Estado do Maranhão in 2004 is emblematic. In fact there was no significant change in the geographical distribution of branches in that state, and what effectively happened was a small reduction in the number of branches, from 247 to 245, and no changes in the number of municipalities that had just one branch. The conclusion is that privatization, up to now, did not imply lack of bank services.

Besides, Chart 3 makes clear that in 2004 the Southeastern Region also concentrated the microfinance sector, comprising credit cooperatives and microentrepreneur credit societies (SCM), with 52% of such institutions. The performance of the Southern Region came first, with the establishment of 12 new credit cooperatives, for a growth of about 3,5% in the year. The reduction in the number of credit cooperatives and microentrepreneur credit societies reflects the adjustment undergone by the sector. In that year, Rio Grande do Sul was again the first, with an increase of 12 credit cooperatives and one SCM, reflecting the tradition of that state in this segment.

Data on the growth of the cooperative credit sector in the South and Southeast corroborate the analysis made in the report “Credit Democratization in Brazil” (www.bcb.gov.bràNational Financial SystemàMicrofinance), available in the Central Bank page of the Internet. In fact, based on a research by the International Labor Organization and information from IBGE, the report argues that the major part of the 14 million small productive units, potential demanders for microcredit, is in the South and Southeast of Brazil, where the State of São Paulo alone responds for one third of the demand. Including the remaining States of the country‘s Southeastern Region brings the figure to over a half (56%). By adding the 19% of the foreseeable demand in the Southern Region, one reaches almost two thirds of the demand.

The probable origins of regional concentration and success of credit cooperatives in the Southeastern Region hinge to both economic and social causes. For being a society of individuals, qualification of its members has revealed to be important for the institutional development of a credit cooperative. This would explain why cooperativism developed in regions where access to education and information is relatively higher. A responsible and day-by-day participation of all members is an important factor for the success of cooperativism.

C – Brazilian financial institutions abroad

The number of branches of Brazilian financial institutions abroad increased from 80, in 2003, to 83, in 2004. In April, June, July and September the number of branches changed with the transfer of the Cayman Branch of Banco BCN S.A. to Banco Alvorada S.A. (within the Bradesco Conglomerate), the closing of one branch of Banco Dibens S.A. and another branch belonging to Banco Cacique S.A. On the other hand, Banco do Brasil S.A. was authorized to open six branches in Portugal, of which three in Lisbon and one in each of the cities of Cascais, Almada and Porto. By the end of the year, 27 domestic financial institutions maintained 83 branches established abroad, with significant participation of Banco do Brasil S.A. with 43 or 51.8% of total branches abroad, as shown by Chart 4.

Regarding representation offices, in the first half of 2004, specifically in July, one unit was cancelled by the winding up of representative activities of Banco Sudameris S.A. in Tokyo, and authorization was granted for the establishment of a representation office of Banco Votorantim S.A. in New York. In the second half of that year, two Banco do Brasil S.A. representation offices were cancelled in Chicago and Los Angeles, and one authorization was granted for the establishment of a representation office of Itaú-BBA S.A. in Shanghai, China.

By the end of 2004, as a result of the foregoing events, just seven financial institutions recorded representation offices in 14 cities abroad according to Charts 4 and 5.

In December, 2003, the number of financial institutions owners of shares of financial or similar institutions, as well as non-financial institutions, abroad was 144, reducing to 139 institutions by December, 2004. Among the main changes, the share of Dresdner Bank Brasil S.A. Banco Múltiplo in the capital of Dresdner Brasil Participações e Serviços Overseas Ltda., headquartered in the Isle of Madeira, and the share of BB Banco de Investimento S.A. in Maxblue America Holdings S.A., headquartered in Madrid, Spain, were withdrawn as a result of the change of shares of the controlled corporation made between BB and the German Deutsche Bank A.G.

D – Foreign capital in SFN

During 2004 there was no significant changes in the presence of foreign capital in the SFN. The presence of foreign banks in the country, during 2004, decreased from 53 to 49 institutions (Chart 13), given the transfers of control: of Banco AGF S.A. to Banco Itaú S.A. and of Banco BNL do Brasil S.A. to União de Bancos Brasileiros S.A. Unibanco (Appendix 1 TC); as well as the exit from SFN of Banco Sterling S.A., with 29.9% of Dutch capital, and of Banco Unión Brasil S.A., with 99.9% of Venezuelan capital, both changed into financial institutions (Appendix 1 CBO).

Despite the decrease of 7.5% in the number of banking institutions with foreign control in 2004, the share of this stratum in the main accounts of Cosif recovered from the figures of 2002 and 2003 (Charts 15, 16 and 17). However, the exit of the four banking institutions with foreign control mentioned above reflected a slight decrease in the share of this stratum in Stockholders’ Equity of the banking segment (Chart 14), which may be confronted with the decrease in the share of banks with foreign control in the gathering of foreign funds by the banking segment (Chart 29).

Simultaneously, the set of banks with foreign share displayed, in 2004, a significant growth in their share of both total stockholders’ equity and total funds gathered abroad by the bank segment (Chart 29).

The breaking down of foreign investments in Brazil by country of origin records in 2004 the presence, in decreasing order of total assets, of bank institutions from the Netherlands (27.77%), Spain (26.67%), United States (21.05%), and United Kingdom (13.19%) ‑ Chart 27 – that, when compared to 2003 – Chart 27/December 2003 – reveals a very similar distribution, with small changes, indicating only an accommodation on the respective relative shares. This stability in relative share of countries of origin of foreign investors was brought about by two significant operations performed between same nationality conglomerates. The acquisitions of the Fleet Boston Financial Corporation by the Bank of American Corporation, in the USA, and of Crédit Lyonnais by Crédit Agricole, in France, reflected in the control of Brazilian subsidiaries without affecting their operations.

The mergers and acquisitions abroad are likely to continue and, in this context, the Brazilian financial market, given its profitability coupled with stability, is an attractive option to foreign investors. Even so, entrance of new foreign institutions in Brazil, during 2004, was restricted to permissions, by Presidential Decree, for institutions that were not yet authorized by the Central Bank of Brazil: Banco Carrefour S.A. (established by BSF Holding) and Garban Icap Brasil DTVM Ltda. (established by Icap plc), as seen in Appendix 2. Concurrently to the entrance of new foreign institutions, the strategic decision of remaining operating in Brazil requires investments that come to aggregate scale, either by way of organic growth, or by acquisition of institutions, as, for instance, the purchase of Banco Sudameris Brasil S.A. by Banco ABN Amro S.A. (Appendix 1 TC).

A glance over the past eight years shows that the number of banks with foreign control more than doubled from 1996 to 2001 and accommodated around 50 institutions in 2004. Conversely, in this period all other strata experienced significant reductions, and their numbers also accommodated from 2001 onwards (Chart 13). Contrasting the share of banks with foreign control vis-à-vis the share of domestic public and private banks, the numeric accommodation from 2001 was accompanies by a stabilization in their share of Stockholders’ Equity of the bank segment as a whole (Chart 29). The decrease of banks with foreign control in accounts such as Stockholders’ Equity and Foreign Gathering of Funds from 2001 to 2004, was seen in bank institutions with foreign share as a consequence of the very strategy of foreign investors, already mentioned above, of redirecting their presence in the SFN by capital sharing in already consolidated domestic institutions.

One may notice that the SFN restructuring, promoted since the establishment of multiple banks, in 1988, following the Financial Stability Plan, in 1994, and lately, from 1995, with the implementation of measures that enabled foreign investors to operate, or increase their share, in the Brazilian financial system, attracted foreign capitals that encouraged competition, resulting in increased presence of bank institutions with foreign control and growth of their share in the most important accounts of the SFN up to 2001 (Charts 14, 15, 16 and 17). This new reality was quickly responded by domestic institutions, both public and private, by means of their adjustment to a fresh competitive environment, leading to reassessment of strategies with a view to secure gains of scale that may warrant profitability in an environment of declining interests, a middle term environment foreseen by all actors of the bank segment.

II – STRUCTURAL DYNAMICS OF THE NATIONAL FINANCIAL SYSTEM

A – SFN outlook in 2004

Starting on December 2003, the increased alternatives of credit in the financial system with the institutionalization of the so called consignation loans implied a singular change in the acting strategies of SFN financial institutions, especially the ones in the retail segment – from large small and middle sized institutions – affecting their structure and imposing an important dynamics in their reorganization process.

These new alternatives were made possible by Law no. 10,820, of December 17, 2003, that extended to employees hired under Consolidação das Leis do Trabalho (CLT), the consolidation of labor laws, including retired employees and pensioners of the National Institute of Social Security (INSS), the borrowing of money by loans, financing and lease operations with appropriate institutions of the financial system, discounting the repayment installments from the borrower’s paycheck, or retirement benefits or pensions of the General Regime of Social Security.

The credit operations made by this instrument, given the guarantee represented by the borrower’s salary or retirement and pension benefits, soon came to be a significant share of the volume of credit granted to natural persons, since the loans are made available at interest rates below the cost of other credit lines. The demand of natural persons for credit was then displaced from traditional credit lines to the so called consignation loan, the proceeds of which are being used to pay previous debts made in other dearer credit modes or to consumption.

In a market credit operating below 30% of the Gross Domestic Product, the perspectives of expansion with this new credit mode opened business opportunities, especially in the niche of consumption financing. In this environment, other moves took place in the financial system. On the one hand, small- and middle-sized financial institutions, taking advantage of their flexible structure and regional action, concentrated their efforts in this new niche, particularly with state and local public bodies, expanding rapidly their portfolio. On the other, retail institutions of large conglomerates came to act in two fronts: (i) by making operating agreements with small- and middle-sized financial institutions to attract their credit portfolios, and (ii) by associating with large retail shops to finance their sales boosted by consignation loans focused on consumption.

In the first front, operational agreements made between small- and middle-sized institutions and large conglomerates have enabled the former to optimize their leveraging ability, to the extent that the sale of portfolios relieves the burdens from their operating limits. On the second, the association between large conglomerates and shop networks have taken place in two ways: (i) by a simple agreement foreseeing the funding of sales directly by the financial institution itself, or (ii) by establishing a specifically tailored financial institution, controlled jointly by the parties of the agreement – the conglomerate and the retailer. In either arrangement, the financial institution acquires also the exclusive right to offer other financial products to the retailer’s clientele.

B – Main driving forces of SFN dynamics

In 2004, consignation loans represented the main driving force of the financial system in the retail bank segment, directing large part of the segment’s investments, in a situation where economic actors pursued competitive advantages against their competitors. The most representative operations resulting from this new environment were the associations of Banco Itaú S.A. with Companhia Brasileira de Distribuição (Pão de Acúcar) and of Banco Bradesco S.A. with Casas Bahia.

However, these associations shall be understood in the context of a market dynamics already hinted in recent years. In fact, a similar move was indicating expansion in the retail segment of the financial system caused by a foreseeable resumption of economic growth and revival of consumption in the wake of a reduction of middle- and long-term interest rates. In this context, similar operations were performed between Unibanco – União de Bancos Brasileiros S.A. and Globex Utilidades S.A. (Ponto Frio), which associated in controlling Banco Investcredit S.A., and with the Magazine Luiza group, that associated within FMX S.A. Sociedade de Crédito, Financiamento e Investimento. With the same picture in mind, HSBC Bank Brasil S.A. Banco Múltiplo purchased Banco Lloyds TSB S.A. Banco Múltiplo, controller of Losango Promotora de Vendas Ltda.

Although the move of basic interests rates in the economy has reverted its downwards path in September 2004, the reductions experienced between June 2003 and April 2004 gave a breath of air needed to expand consumption, sanctioning the investments made by the financial system in structures turned towards the provision of credit. The advent of consignation loans enhanced the picture, adding important dynamics to the organization process of retail institutions, embodied by associations between these institutions and economic agents turned towards consumption of goods and services.

Regarding the remaining segments of SFN, the dynamics underlying the microfinance sector, especially credit cooperatives, deserves mention. Following the changes brought by Resolutions no. 3,058, of December 20, 2002, no. 3,106, of June 25, 2003, and no. 3,140, of November 27, 2003, establishing new types of credit cooperatives – microentrepreneurs and micro and small entrepreneurs, entrepreneurs members of class associations, and free admission of members –, the organization of which demands previous compliance with different requisites, a distinct move was seen in this segment. Institutions that have customarily operated under the traditional model, that is to say, their membership was defined according to economic activity or occupation, came to demand their change into the new types established buy the new regulation.

The move maintained in 2004 and the expectation is that it will become stronger in years to follow. On the other hand, though in the establishment of new credit cooperatives part of the entrepreneurs still select the types envisaged by the old regulation, the model of which was incorporated in the new rules, an important part of them looks for a structure under the new model.

C – Competitive environment in SFN

As mentioned above, the search for competitive advantages, intensified by the dynamics induced by an expansion of credit, especially by consignation loans, oriented a significant part of investments in the processes of reorganization undertaken by retail segment institutions.

Similarly, the increased consumption of 2004 intensified the association between retail segment conglomerates and large network stores. This move was driven by two businesses opportunities highly valued in the market. On the one side, the possibility of being the only one to finance the sales of associated stores, increasing the credit portfolio of financial institutions. On the other, the also exclusive access to the associated store customers, enabling the placement of tailored financial products.

These things did not happen apart from each other. In 2004, the competition for customers simultaneously intensified the segmentation process of large conglomerates, which also spent a large slice of their energy and resources to supply their financial institutions with efficient and competitive instruments to approach the clientele. In this sense, jointly with the partnerships made with large retail stores, relevance was attached to assimilation of institutions acquired in recent years, purchased not only for issues of scale but also for their complementary and synergic character, as such indicators were at the time seen as fundamental in leveraging the efficiency of the purchaser in the dispute for clientele in specific markets.

The segmentation, in general similar in all conglomerates and established based on the customer’s profile starting with its identification – natural or juristic person – level of income or revenues, occupation or trade, came to be implemented, in recent years, in a more differentiated fashion among institutions, detailing other levels of affinity, especially for natural persons, such as cultural level, age bracket, consumption preferences, location of residence. This was due to the need of differentiating the relationship with the customers, given that financial products are not significantly different across institutions. For this and considering the high competition among these segments, an institution that meets the requirements of the clientele becomes privileged in the market. An expected outcome is that this competitive environment may lower the interest rates of the credit market.

The move, however, failed to affect the SFN structure. The transfers of control authorized in 2004 involving the bank segment and reported in Appendix 1 have already produced their market effects in the previous year.

D – SFN organic growth

Between 2003 and 2004 the number of institutions in SFN reduced by 37, according to Chart 1. As already seen, this move is not a consequence of structural changes in the financial system and may be explained by its vegetative dynamics, even because the number of institutions over the past five years kept around 2,520 institutions – the 2004 reduction drove the number of institutions practically to the figure of December 2000.

In the banking segment, however, this reduction (29 institutions) proved to be persistent in the same period, though in the general context it also does not mean an impact in the structure of the system.

Notwithstanding the decrease of institutions in the banking segment, the year 2004 witnessed an organic growth, represented by an expanded network of dependencies. Between 2003 and 2004 there was an increase of 1,491 new dependencies. Examining the main types of dependencies, one finds that in 2004 there was an expansion in the number of bank branches (411) resuming the growth interrupted in 2003, and a decrease in the number of Bank Service Posts (PAR), keeping the reduction trend seen in this type of dependency in recent years. Regarding Electronic Service Posts (PAE), their expansion trend kept strong for both individual and associated networks.

Regarding associated networks, this growing trend evidences the great interest of the financial system in shared service structures, given the comparative advantages as against individual networks. The project of shared network by Banco do Brasil S.A. and Caixa Econômica Federal, the Federal Savings Bank, has been observed with great attention and there are already similar arrangements between other institutions of the market.

E – Regional distribution of SFN funds

The distribution of funds represented by deposits and credit operations of banking financial institutions across the different regions of the country keeps relatively stable along the past eight years, as displayed in Chart 20. The changes over the period, though an indication of short and middle term trends, were not warranted in the long term.

While deposits and credit operations of the banking segment in the Southeastern Region followed opposing trends since 1997 ‑ dropping deposits and increasing credit operations –, the trend is reverted from 2003. In the Center-Western Region, the trend of increased deposits recorded in previous years suggests a reversion from 2004. In the remaining regions, the change of these items recorded similar characteristics.

Therefore this picture, that evidences mere oscillations around figures historically stratified, which is likely to be correlated to the economic profile of each region itself, would hardly be changed by SFN endogenous variables.

III – BEHAVIOR OF THE BANK SEGMENT

A – Share of the bank segment strata in stockholders’ equity, assets, deposits and total credit operations of the segment

Charts 14, 15, 16 and 17 depict the relative shares of different strata of the bank segment arranged according to capital control, in stockholders’ equity, assets, deposits and total credit operations of this financial market segment. The information in the charts show the shares regarding public banks, including the old savings banks (mentioned only because the charts include years when such institutions were still operating), Banco do Brasil S.A. (BB) and Caixa Econômica Federal (CAIXA) separately, and private banks in two strata – domestic private (including domestic private banks with a minority foreign share) and foreign private banks (including banks under foreign control and branches of foreign banks).

Chart 14 indicates that public banks recorded, between 2003 and 2004, a small increase of their relative share in total stockholders’ equity in the segment, coming from 4.3% to 4.7% in 2004.

The relative share of BB and CAIXA also recorded a small increase. Notice that the share of CAIXA in stockholders’ equity increased from 3.9% in 2003 to 4.1% in 2004, while Banco do Brasil S.A. had its share increased from 8.3% to 8,7% over the same period. The favorable performance of these two institutions regarding their relative share in the stockholders’ equity of the banking segment may be explained by their growing profitability over the period.

Between 2003 and 2004, the relative share of domestic private banks in total stockholders’ equity of the segment became slightly reduced, from 53.2% to 52.9%.

Regarding banks under foreign control, Chart 14 shows that they diminished their share in the stockholders’ equity of the banking segment, coming from the 28.1% recorded in 2003 to 27.1% in 2004. Despite the reduction, foreign banks that selected to continue operating in Brazil have shown to be more prepared to compete, since regarding assets, deposits and total credit operations their relative share increased, as we shall see later.

Chart 15 depicts the relative share of the above strata of the banking segment in total assets of the segment. Notice that public banks – BB and CAIXA excepted – had their relative share reduced from 5.8% to 5.5% between 2003 and 2004.

The relative shares of BB and CAIXA behaved similarly between 2003 and 2004. BB reduced its share in total assets of the banking segment from 18.4% to 17.4%, while CAIXA reduced this share from 13% to 11.5% over the same period.

In 2004, the stratum of domestic private banks recorded a small increase of its share in total assets of the banking segment, from 40.8%, in 2003, to 41.7%. Over the same period, the stratum of banks under foreign control increased its share in this aggregate, from 20.7% to 22.4%. The better performance of banks under foreign control under the criterion of total assets indicates that those who remained in the Brazilian market prepared themselves to compete, implementing strategies to act in new market niches and increase their efficiency.

Regarding the relative shares of different strata of the banking segment in total deposits of such segment, as shown by Chart 16, public banks, BB and CAIXA excepted, treated individually, reduced their position from 7.3%, in 2003, to 6.6%, in 2004. BB had its share in the period reduced from 18.6% to 17.1%. CAIXA also reduced its share in this item, from 16.5%, in 2003 to 15.6%, in 2004, while maintaining its position of larger gatherer of savings deposits in the country.

Domestic private banks recorded a growth in their share on total deposits of the banking segment, from 38.2%, in 2003, to 39.4%, in 2004. In turn, foreign banks and banks under foreign control increased their relative share in total deposits of the Brazilian banking segment, from 17.6% to 19.9%, from 2003 to 2004. The growth, as mentioned before, may be explained by a better adaptation of foreign institutions to the market conditions of the Brazilian market.

Regarding credit operations of the banking segment, the relative shares of the different strata of the segment are recorded on Chart 17. Public banks, BB and CAIXA excepted, treated separately, did not record significant change in their share that came from 4.5% to 4.4% in the period, representing a stabilization of the strong reduction process observed between 1996 and 2001, when the rate dropped from 23.5% to 3.1%, as analyzed in previous reports.

BB recorded reduction in its relative share of the total banking segment credit operations, from 20.4% in 2003 to 19.4% in 2004, reverting the growing trend started in 1999, when its rank in this aggregate was just 10.6%. Regarding CAIXA, its share in this item over the same period evidences a relative stability of its rank, in about 7%.

Considering the same analysis of the banking system total credit operations, it may be noticed that domestic private banks kept constant, around 41%, their relative share between 2003 and 2004. The share of foreign banks raised again between 2003 and 2004, from 23.8% to 25.1% of total credit operations for the reasons already mentioned.

Analyzing the path of banking segment strata relative shares in stockholders’ equity, assets and total credit operation of the segment brings to view that the 2004 changes did not result in significant changes in the financial structure of the SFN, which remains balanced and populated with capitalized institutions.

Despite of the strategic events, especially the entering into agreements for association and operational arrangements between large financial institutions with retail shop networks over the past years, the national financial system signals a sedimentation of its structure. From 2002, there was a reversion in the investment process by foreign banks in Brazil, when some of them decided to either end their activities or associate with domestic banks. However, in 2004, the foreign banks better adapted to the Brazilian financial market increased their share in total assets, deposits and credit operations.

B – Banking services

In Brazil, banking financial institutions provide services to the public through the following dependencies: branches, advanced service posts (PAA), banking service posts (PAB), electronic banking service posts (PAF), cooperative service posts (PAC) and correspondents, in addition to collection and payment banking posts (PAP) and rural credit advanced posts (PACRE), the last two no longer authorized by the Central Bank. Charts 6, 7, 8, 9, 10, 11 and 12 show data and information related to the organization and distribution of different bank dependencies.

By the end of 2004, there were 52,692 service points (branches and posts, except correspondents), representing an increase of 2.8% versus the position of 2003, as displayed in Chart 10.

Though bank branches are the main type of service point, both regarding scope of services and free access by the general public, since 2002 the number of dependencies of this type grows more slowly than electronic service posts. In 2004, this trend became stronger. The growth in the number of branches was smaller than the growth in number of electronic service posts. Therefore, while by the end of 2003 the number of individual bank branches reached 16,829, versus 22,151 electronic service posts, by the end of 2004 these figures were 17,260 versus 22,843, respectively (Chart 10). We notice, therefore, an increase of 2.5% in the number of branches and 3.1% in the number of service posts.

This was an expected outcome in view of the technological advancements introduced by the need felt by institutions to cut costs, what triggered a deep rationalization of operating procedures by financial institutions, without, however, imply prejudices to the quality of services rendered to the population. Another explanation for the lower pace of growth experienced by bank branches is the reorganization processes implemented by large network banks in the wake of acquisitions that took place in recent years.

It is true that, when we analyze the item branches, it becomes clear that, in absolute numbers, there was a decrease between 2002 and 2003 and an increase from 2003 to 2004. Part of the explanation for this fact may be the change in the characteristics of acquisitions. When the acquisition occurs between banks that operate in the same regions of the country, it is expected that the doubling of bank dependencies is eliminated, and this may entail reduction in the number of bank branches. However, in recent years, acquisitions did not fall in this profile and, consequently, there was not significant elimination of duplicates in the branch networks.

The increase in the offer of bank services brought about by automatic service, through electronic terminals, is providing a higher degree of comfort to customers in their use for many reasons, such as greater area of presence and hours of availability to users, thus improving the quality of service to the population.

As a result of new technologies being absorbed by Brazilian financial institutions, the costs incurred in installation and maintenance of the so called automatic tellers are much smaller when compared with the costs of the traditional service, operated by employees of the institution. It must be stressed that the cost of physical installation is the highest part of the banks’ fixed cost.

The number of PAE, encompassing the individual network (directly managed by the banks) and the associated network – managed by a company controlled by more than one financial institution, such as “Banco 24 Horas” –, displayed significant increase, coming from 24,367, in 2003, to 25,595, in 2004.

The increase in the number of PAE explains the decrease recorded in the number of PABs, a bank dependency that has limited action, since it may only be installed in the premises of a public administration body or private company and be operated by the internal public. The move by public banks towards changing this type of dependency into a bank branch also explains the decrease in the number of PAB.

One expects a ratification of this trend in the future – rate of increase of electronic services higher than that of in-branch services – following the prospective reduction of income from the institutions own portfolio, mainly public securities, based on a likely decrease of middle and long term interest rates. Many institutions will persist in cutting administrative costs to keep their profits and one of the possible ways would be reducing the fixed costs associated by traditional services rendered by the branches network.

As it may be expected, as a result of the hindrances to open new dependencies of the type PAP and PACRE, the trend of reducing the remaining number of such dependencies is unchanged (Chart 10).

Regarding bank branches, despite the persistent move towards cost reduction by the bank network, in 2004 the establishment of new 2,107 dependencies was authorized, of which 1,501 authorizations, about 71% (Appendix 1) were granted to the three largest private banks in the country. However, as a piece of the strategy already discussed above, part of the branches so authorized just replaced others of the same conglomerate that were closed in the period, mainly branches of privatized state banks.

Out of the 17,260 branches operating in December 2004, the first 20 largest banks ranked by branch network had 16,536, therefore increasing just 7.8% versus the figure for the previous year (Charts 6 and 7), which was 16,829 branches. This increase contrasts with the drop in the number of branches belonging to other banking institutions, which decreased from 901 to 433 in the period, explained by both the selection of market niches other than retail, where the branch network is no longer needed, and migration of part of their branches to the segment of large banks, a result of acquisition processes.

When bank services comes into examination our attention is called to the number of municipalities that do not have any branch-, PAA- or PAB-type dependency, though may have financial services supplied by correspondents. By the end of 2004, there were 1,743 municipalities without any of such types of dependency, which represents an increase of 143 municipalities when compared with the 1600 of 2003 (Chart 11). The growth may be explained by the replacement of branches and service posts by bank correspondent in the municipalities that failed to provide a return in line with the cost of maintaining dependencies of the bank itself. We have therefore that the lack of a branch, PAA, PAB or even PAC does not mean lack of bank services, since practically all Brazilian municipalities may rely on same type of assistance, including assistance rendered through correspondents, as we may see below.

PAA are service posts that perform, in special conditions, the same operations as bank branches. In 2004, the number of PAA decreased 5.3% as against the previous year (634 versus 229). This datum combined with the reduced number of branches and PAB installed in municipalities without branches (Chart 10) evidences the important role played by correspondents in the country.

IV – THE MICROFINANCE SECTOR

Democratizing the access to financial services

One of the challenges faced by the Monetary Authority in our country is to secure democratic access to financial services in different regions and all layers of the Brazilian population. Democratic access displays two different dimensions. The first is to enable access to financial services by the lower income population. The second dimension of this challenge, which often adds to the first, is to provide services to regions devoid of financial services.

In fact, along the years, this challenge is being confronted with a strong will to overcome it, materialized mainly in the concentrated effort to restructure an important segment of SFN, represented by microfinance.

Initially, we shall clarify the concept of microfinance and establish its differences to microcredit. Microfinance relates to the provision of financial services to the lower income population with the use of differentiated management processes and products in line with the possibilities of customers and sustainable in the long term. As part of the microfinance universe, microcredit relates to activities of funding small ventures and differentiates from the remaining types of loans mainly for the methodology employed, which is different from the one used in traditional credit operations. This methodology may be succinctly described by the use of the credit agent, by joint guarantee, by shorter terms in credit operations and by progressive values.

To provide this type of service, there are entities specialized in the supply of credit, offering different products, comprising non-governmental organizations (NGO), civil society organization of public interest (Oscip), credit cooperatives, microentrepreneur credit societies (SCM) and juristic persons retained as correspondents by public and private commercial banks.

Within the SFN, among other institutions, actors of the microfinance sector include credit cooperatives, SCMs and correspondents within the country. Despite a concentration of credit cooperatives and SCMs in the Southern and Southeastern Regions of the country, as a result of the geographic distribution of economic activity in the country, one may witness the dissemination of such financial institutions in large and middle sized cities of other regions. Their impact in decentralization of banking services from the geographical viewpoint is still much reduced, though they play a relevant role in the dynamics of small businesses frequently lacking capital and financing instruments. One expects that the regulatory improvements implemented in 2003 may strengthen the presence of such institutions in other regions of the country.

Correspondents within the country constitute a further instrument for democratization and decentralization of financial services. Taking the physical, population and economic aspects, mechanisms that may facilitate the flow of funds between financially assisted municipalities and those that do not count on traditional assistance represented by bank branches and service posts is vital.

The number of service points provided by correspondents within the country increased about 21% in 2004, 121% over the figure of 17 thousand bank branches in existing. The abovementioned “Credit Democratization in Brazil” (www.bcb.gov.bràNational Financial SystemàMicrofinance)” – in the correspondents within the country chapter, records a volume above 600 million payments of payments and receipts performed in 2003 by means of correspondents in the country. The initiatives cause immediate social and economic reflex for the 40 million “unbaked” people who live in the cities’ outskirts and regions distant from large urban centers.

One of the main factors behind the growth of correspondents is the interest of financial institutions in owning a large network of branches. Examples are Caixa Econômica Federal, with its lottery kiosks network, Banco Bradesco S.A., which entered into agreement with Empresa Brasileira de Correios e Telégrafos, the Brazilian post and mail company, in the project “Banco Postal”, and Banco do Brasil S.A., with the establishment of its subsidiary named “Banco Popular do Brasil S.A.”.

One shall notice that correspondents were first thought with the purpose of overcoming the challenge of democratizing the access to financial services, both in its social and economic dimension, providing services to lower income populations, and in its geographical dimension, assisting regions devoid of such services. Correspondents fulfill a social and economic function with relevant impact in income and wealth distribution in our country.

In 2004, several measures were taken to encourage the microfinance sector. An important one was the massive banking inclusion observed when the demand for credit an other banking services by the lower income population was associated to mechanisms that favored the access to such services, such as the simplified bank account, the establishment of Banco Popular do Brasil S.A. and the credit with installment repayments withdrew from the employee’s paycheck and from Social Security pensioners’ and retirees’ benefits and the widening and consolidation of Programa Crediamigo do Banco do Nordeste do Brasil S.A., the Friendly Credit Program of Banco do Nordeste do Brasil S.A.

Another important measure was the increase of financing sources to popular and productive credit, with the assignment of 2% of demand deposits, with a 2% cap to monthly interest rates, and a limit of R$600 to free use loans and R$1 thousand to microentrepreneurs’ loans.

Regarding microcredit specifically, it must be stressed the establishment, by the end of 2004, of Programa Nacional de Microcrédito Produtivo Orientado (PNMPO), the National Program of Oriented Productive Microcredit, under Provisional Measure no. 226, of 11.29.2004, intended for natural and juristic persons entrepreneurs of small productive activities, with a gross annual revenue limited to R$60 thousand. The program uses a methodology based on direct interfacing of the credit agent with the entrepreneurs in the location of the economic activity, which contributes in the definition of needs for credit and management linked to the venture development, being the credit amount and conditions defined after an assessment of the activity and creditworthiness of the borrower.

A – Microentrepreneur credit societies

During 2004, although the number of institutions within SCM has increased, there was a significant reduction in their rate of growth, since while in the previous two years this number grew at rates of 32% and 60%, respectively, the pace decreased to just over 4% in the past year. However, this growth, when compared to other SFN segments, makes clear that, while others failed to record significant expansion or even retracted, the SCM segment recorded the fourth largest performance, closing to commercial banks (4,35%) and just below that of foreign exchange broker societies (9.30%) and development agencies (9.09%), as evidenced by Chart 1.

The net expansion in terms of number of institutions, from 49 to 51 institutions, shall be broken down to reflect moves internal to the segment. Therefore, in 2004 seven SCM were authorized to operate, a number that is just above 50% of the authorizations granted in the previous year, when 13 new institutions entered into the segment. However, this entrance record was opposed by the exit of five SCM, which applied for cancellation of their authorization to operate. Regarding the corporate context of the institutions, there was no change in control.

As for headquarters location, the seven authorizations mentioned above were distributed by States as follows: One in the State pf Amazonas, one in Mato Grosso, one in Paraná, one in Santa Catarina and two in São Paulo. One may notice that, though the State of São Paulo is responsible for close to half the number of new authorizations to operate, there was a certain scattering among other units of the Federation. On the other hand, the same distribution pattern was not duplicated by applications for cancellation, since out of five, four happened in Rio de Janeiro and one in Santa Catarina. With this, the State of São Paulo assumed the leadership of this segment, what had already happened to other SFN segments, and came to be the location of 31% of total authorized SCM, followed by Rio de Janeiro and Minas Gerais, with 17.65% each.

TABLE 1 – SCM DISTRIBUTION BY FEDERATION UNITS

FEDERATION UNIT	NUMBER	PERCENTAGE
AMAZONAS	2	3.92%
CEARÁ	2	3.92%
ESPÍRITO SANTO	1	1.96%
MATO GROSSO DO SUL	1	1.96%
MINAS GERAIS	9	17.65%
PARAÍBA	1	1.96%
PARANÁ	6	11.76%
PERNAMBUCO	1	1.96%
RIO DE JANEIRO	9	17.65%
RIO GRANDE DO SUL	2	3.92%
SANTA CATARINA	1	1.96%
SÃO PAULO	16	31.37%
TOTAL	51	100.00%

Source: UNICAD.

In the regional context, though the State of São Paulo keeps its numeric leadership by unit in the federation within SCM, cancellations that took place in the State of Rio de Janeiro reduced the concentration of this segment in the Southeastern region, a process that had been interrupted in 2003. By the end of 2004, the region, which had about 73% of institutions of the segment in 2003, came to hold over 68%, a rank it had featured in 2002. Table 2 below summarizes the performance of the segment in different regions:

Table 2 – SCM DISTRIBUTION PERFORMANCE BY REGION

REGION	NUMBER OF MICROENTREPRENEUR CREDIT SOCIETIES
REGION	2000	2001	2002	2003	2004
NORTHEAST	0	2	3	4	4
NORTH	0	0	1	1	2
CENTER-WEST	1	1	1	0	1
SOUTHEAST	9	18	25	36	35
SOUTH	1	2	7	8	9
TOTAL	11	23	37	49	51

Source: UNICAD

Regarding financial indicators used to measure the SCM performance (total assets, credit operations, stockholders’ equity and other liability accounts – except memorandum accounts), the segment keeps its expansion path, recording significant growth. Table 3 shows the amounts of the accounting aggregates used to measure the performance of the segment and Table 4 its percentage growth. As mentioned above, Table 4 makes clear that, while the expansion of the segment in 2004, in terms of number of institutions, was slightly over 4%, in financial terms there was a very significant increase.

TABLE 3 – MICROENTREPRENEUR CREDIT SOCIETIES (SCM)

PERFORMANCE OF FINANCIAL AGGREGATES (R$ thousands)

ASSET ITEM	DEC/2001	DEC/2002	DEC/2003	DEC/2004
NET WORTH	4,894	7,411	18,014	31,455
TOTAL ASSETS¹	7,636	14,680	29,889	41,112
CREDIT OPERATIONS	4,734	10,831	17,661	27,113
LIABILITY ACCOUNTS²	2,743	7,270	11,875	10,629

Source: SISBACEN

Figures in Table 4 show that, although the foreign gathering of the sector reduced 10% (liability accounts), this reduction was offset by a 75% increase in stockholders’ equity. As a result, 2004 kept the trend of increased capitalization of SCM, with a decrease in the rate of entrance of funds from other financial agents in the segment. Therefore, this suggests that the sector gained strength by endogenous factors, its own capital representing close to 75% of the funds financing their asset operations. By the end of 2004, each Real of the SCM institutions own funds corresponded to less than 0,34 Centavos of Real of third parties’ resources.

TABLE 4 – YEARLY PERCENTAGE PERFORMANCE OF FINANCIAL VALUES IN THE SCM SEGMENT (INSTITUTIONS IN OPERATION)

ASSET ITEM	2001-2002 (%)	2002-2003 (%)	2003-2004 (%)
NET ASSET	51	143	74
TOTAL ASSETS	92	103	37
CREDIT OPERATIONS	129	63	53
LIABILITY ACCOUNTS²	165	63	-10

Source: SISBACEN

1/ Total assets do not include memorandum accounts, but includes credit operations

2/ Liability accounts refer to total liabilities, memorandum accounts and stockholders’ equity excluded.

Regarding application of funds, one notices that the increase in credit operations (53%) was well above the growth of total assets (37%). The reason is that the trend observed in the previous year, of directing funds to items of assets other than credit operations, was abandoned, and the share of the latter grew from 59% to 66% of total assets of the segment.

Numbers taken from the SCM performance in 2004 lead to the conclusion that the segment kept a consistently growing path, where the institutions gained strength from the financial viewpoint, especially in terms of stockholders’ equity and credit operations. Besides, the reduction of third party funds, the redirection of funds to credit operations and the consolidation of the State of São Paulo as the main location for SCM marked the segment during the year in question.

B – Credit cooperatives

1. Recent history of the segment

In recent years, SFN has experienced a decrease in the number of institutions in operation. In opposition, the segment of credit cooperatives was growing since the seventies in a continuous move until December 2003. In 2004, the trend was reverted, with a reduction in the number of cooperatives as against the previous year (Chart 1).[1] [2]

This reduction in the number of credit cooperatives may be basically ascribed to three reasons analyzed below:

(a) New entry rules

According to Resolution no. 3,106, of June 25, 2003, before the establishment of a new cooperative a project should be submitted including, among other items, description of internal control systems, estimate of the number of persons who fulfill the conditions to become a member in the three years following the establishment, description of the services to be rendered, credit and technology policies and systems used in the service to members. Besides, cooperatives involving greater operating complexity should submit an economic and financial feasibility study, summarized in an electronic spreadsheet.

The goal of the project – a true business plan – is not only secure the economic and financial feasibility of the credit cooperative being established, but mainly act as a powerful managerial tool for the institution, enabling it to identify deviations of route and take corrective measures in a timely fashion. Following this line, the assumptions of the project shall be discussed in logic basis, not only to serve as a foundation for its approval but, mainly, to create a responsibility for the persons in charge for the monitoring and corresponding carrying out of the project. Notice that the new regulations require a commitment from the central cooperative to which the newly established cooperative shall be affiliated in following the carrying out of the project and monitoring the results achieved.

The result expected with these new procedures for access to the financial system by credit cooperatives is a significant reduction in the number of insolvent cooperatives in the middle and long term. In this sense, the new rules resulted a prompt decrease in the number of authorizations to operate granted, not because the number of applications reduced, but because the persons in charge of technical aspects of some projects gave up the venture, recognizing their unfeasibility.

In 2004, 136 applications for establishment of credit cooperatives were submitted to the Central Bank. Over the same period of time, 38 applications were approved, three were refused and 50 were recorded as suspended at the request of the applicants. There is still a set of applications submitted to the Central Bank in 2004 that are pending further information to complete the projects and will be only examined for approval during 2005.

(b) Supervisory action of the Central Bank

At the time the Central Bank pursued, through the new access rules, a credit cooperative system more secure and trustworthy, the supervisory role became more rigorous, with a view to purge the system of problematic institutions. This way, a total of 50 institutions were excluded from the system in 2004: 32 by ordinary liquidation, some by their own initiative and others by induction of the Central Bank; one has decreed its extra-judicial liquidation; 12 were cancelled by initiative of the Central Bank; two had their bankruptcy decreed and three were extinct.

Simultaneously to the interventions of the Central Bank, the main organized systems are promoting a policy of mergers, with a view to both assisting institutions in difficulties and gain in operation scale. In 2004, there was a total of nine mergers, some by the action of guarantee funds that acquired, through assignment, credits of merged cooperatives written off as losses, making the merger feasible and avoiding losses to members of the merged institution as well as to the remaining credit cooperatives in the region, as a result of the image risk that would inevitably rise in case of insolvency of the merged credit cooperative.

The reduction in number of credit cooperatives did not mean a reduction in their share in the National Financial System. On the contrary, the share of credit cooperatives in volume of credit operations among banking institutions rose from 0.53% in December 1996 to 2.15% in December 2003 and to 2.30% in December 2004, recording, over the past eight years, a significant yearly growth of more than 20% in their average relative share on the banking sector credit operations (Chart 17). The volume of credit operations increased 31.69% in 2004, recording an yearly average growth close to 30% since December 1995 (Chart 18).

The relative shares of stockholders’ equity and total assets belonging to the set of credit cooperatives have also grown as against these items on the set of banking institutions in Brazil (Charts 14 and 15). In 2004, the total stockholders’ equity of the segment increased 26.31% and total assets, 24.10% (Chart 18).

Regarding the value of credit cooperatives‘ total deposits, that was recording a steady growth in relative share against the set of banking institutions up to 2003, a reduction of share was recorded in 2004, from 1.82% to 1.40% Chart 16), and a drop in total volume of 7.79% (Chart 18). In fact, this is a mere reduction of accounting nature, since after Circular no. 3,238, of May 17, 2004, amounts transferred from individual cooperatives to central cooperatives, under financial centralization[3], ceased to be recorded as demand deposits and came to be recorded in a specific account. Once this accounting effect is cleared, the volume of the credit cooperatives total deposits increased about 21% in 1004, corroborating the increase of the share of credit cooperatives in all large accounting groups used to rank financial institutions.

In absolute terms, from December 1995 to December 2004, total shareholders’ equity of credit cooperative institutions increased 884.82%, credit operations rose 924%, assets, 1,437.94% and deposits, despite the accounting aspects mentioned above, increased 1,878.93% (Chart 18).

2. Structure of the segment

In December 2004, the credit cooperative system in Brazil was structured with two cooperative banks, one a multiple bank and the other a commercial bank, four confederations[4], one federation[5], 38 central cooperatives and 1,397 single cooperatives, totaling over 2 million members. The credit cooperate structure in Brazil and its relationship with main cooperative entities in the world may be seen in the following flowchart:

FLOWCHART OF CREDIT COOPERATIVES IN BRAZIL INTEGRATING INTERNATIONAL ENTITIES OF THE SEGMENT

3. Entities participating in the credit cooperative segment

(a) ICA – International Co-operative Alliance (www.ica.coop/ica/pt):

The International Co-operative Alliance is an independent non-governmental organization that congregates, represents and provides services to cooperative organizations worldwide.

ICA was established in London, in 1895. Its members are cooperatives of all activity sectors, such as agricultural or farm, credit, power, labor, housing, tourism and consumption cooperatives. ICA has over 230 member organizations, from over 100 countries, representing above 730 million individuals all over the world.

In 1946, ICA was the first non-governmental organization to participate in a Consulting Council of the United Nations. Acting through its regional offices, ICA operates as a catalytic and supporting agent for the benefit of autonomous cooperatives in developing countries.

ICA, as a worldwide representative of cooperatives, has the following objects:

- to promote and protect cooperative values and principles;

- to facilitate the development of economic and other mutually beneficial relations between its member organizations.

- to promote economic and social progress of people, thereby contributing to international peace and security.

To fulfill such objects, ICA organizes international, regional and sectoral meetings that operate as forums for discussions and exchange of ideas, experiences and information among its numerous affiliates. ICA records information on cooperative development, resources and statistics, making them available to its members and other organizations interested in Cooperativism. ICA also runs an documentation center and issues several specialized publications, in addition to periodicals, such as the official publications of ICA, “Review of International Co-operation” and “ICA News”.

The ICA development program has 40 years of experience. It meets technical needs of cooperatives for their development. ICA’s function is to serve as a facilitating element, coordinating cooperative development, promoting and consolidating cooperative organizations worldwide. Programs are based in priorities defined by its members and focus on:

- promoting development of institutions, human resources and environment, women integration and strategic planning;

- exercising influence on governments to create conditions that are favorable to cooperative development, by organizing regional conferences that may arise the interest of politic leaders on the role played by cooperatives;

- making possible the interchange of experience and information exchange;

- mobilizing funds for cooperative development.

(b) ICBA – International Cooperative Bank Association (www.ica.coop/icba):

The International Cooperative Bank Association (ICBA) is a Sectoral Organization of the International Co-operative Alliance (ICA), established in 1922 by national cooperative banks and financial organizations. ICBA promotes cooperation between cooperative banks of developed and developing countries. Currently, ICBA has 55 members worldwide.

WOCCU, headquartered in Madison, Wisconsin, USA, was established in 1971 and has members and affiliates in 84 countries around the world. Members include national and international credit cooperative representation entities and other service rendering organizations. Together, they represent over 40 thousand credit cooperatives serving over 123 million members.

WOCCU represents credit cooperatives at world level, publishes matters of credit cooperative interest, promotes the interchange between credit cooperatives, supports the establishment of credit cooperative representation entities, proposes legislation models, rules, statutes, regulations, internal (self-management) and external monitoring and fosters the development of credit cooperatives, providing technical assistance, managerial tools and credit risk analysis services and implements development projects.

(d) COLAC – Latin-American Confederation of Savings and Credit Cooperatives (www.colac.com):

COLAC is a non-governmental organization representative of credit cooperatives, headquartered in the City of Panama, Republic of Panama, operating as coordinator of a credit cooperative network in Latin-America.

COLAC was established in August 28, 1970, by an agreement between the board of administration of credit cooperative national organizations of the following countries: Dutch Antilles, Bolivia, Brazil, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru, Dominican Republic and Venezuela.

Its mission is to provide specialized and ancillary services of financial intermediation, political support and technology transfer to its members in Latin-America, with the purpose of consolidating efficient cooperative organization networks and strengthen economic and social growth through participation.

(e) OCB – Brazilian Cooperative Organization (www.ocb.org.br):

The Brazilian Cooperative Organization – OCB is a private non-profit civil society with headquarters in Brasília, Federal District.

The objects of OCB are:

- to represent the cooperative system under applicable legislation;

- to preserve and improved, on a permanent basis, the identity of the Cooperative System, according to values and principles internationally recognized and under applicable legislation, as well as its unit and good standing before Civil Society and Public Authorities.

- To keep records and files of cooperative societies of any degree and goals;

- To encourage and guide cooperative societies;

- To promote, comply and cause to be complied with the self-management of the Cooperative System members;

- To integrate and classify cooperative by Cooperative Branch;

- To maintain assistance, general guidance services and other services in the interest of the Cooperative System;

- To encourage the production of knowledge applied to the functional and organizational development of cooperatives;

- To promote and develop Cooperativism;

- To fight practices detrimental to cooperative development and keep the appropriate authorities, as the case may be, informed of such practices;

- To issue opinions on controversies pertinent to cooperativism that may be submitted to its analysis;

- To set political guidelines for the Cooperative System;

- To promote defense, in courts and otherwise, of homogeneous, collective and diffuse rights of the Cooperative System;

- To contribute towards improving the cooperative legislation and assist the government in taking decisions and measures related to the Cooperative System;

- To nominate representatives for offices in public and private bodies, either national or international, according to the regional or state representative body, as the case may be;

- To accredit independent audit services, according to the regional or state representative body, as the case may be;

- To establish guidelines for and collect cooperative contributions;

- To maintain integration and interchange relations with the Cooperative Branches and Bodies, either within the country or abroad;

- To exercise employers union representation of cooperatives, assuming all rights of an Employer’s Confederation;

- To define criteria for the use of names and trademarks of the ORGANIZAÇÃO DAS COOPERATIVAS BRASILEIRAS, the Brazilian Cooperative Organization.

The OCEs, State Cooperative Organizations, have the same activities as the OCB at the Units of the Federation.

(f) CONFERBRÁS – Confederação Brasileira de Crédito, the Brazilian Credit Confederation (www.conferbras.com.br):

Conferbrás is the first credit cooperatives confederation in Brazil, a non-financial institution for political representation of its affiliates.

(g) UNICRED DO BRASIL – Confederação Nacional das Cooperativas Centrais Unicred, the National Confederation of Unicred Central Cooperatives (www.unicred.com.br):

Unicred do Brasil is the central body of the Unicred System.

(h) SICREDIT SERVIÇOS – Confederação Interestadual das Cooperativas Ligadas ao Sicredi, the Interstate Confederation of Sicredi Cooperatives (www.sicredi.com.br):

SICREDI SERVIÇOS is the central body of the Sicredi system.

(i) SICOOB BRASIL – Confederação Nacional das Cooperativas do Sicoob Ltda, the National Confederation of Sicoob Cooperatives Ltd. (www.sicoob.com.br):

SICOOB BRASIL is the central body of the Siccob System.

(j) Cooperative banks

A cooperative bank is a multiple bank or a commercial bank controlled by a central credit cooperative that shall control not less than 51% of the bank’s voting shares. Cooperative banks currently existing are Bansicredi, a multiple bank maintaining commercial and investment portfolios, in addition to being authorized to operate in foreign exchange; and Bancoob, a commercial bank.

(l) ANCOSOL – Associação National do Cooperativismo de Crédito de Economia Familiar e Solidária,the National Association of Family and Solidary Savings Cooperatism:

ANCOSOL, established in 2004, groups some central credit cooperatives of solidary and family savings, as well as some systems not organized in centrals.

APPENDIX

Regulations issued in 2004:

· Circular no. 3,226, of February 18, 2004:

Regulates the services rendered by multiple banks, commercial banks and Caixa Econômica Federal to credit cooperatives, related to the clearing of checks and access to payment settlement and interbank transfer systems (amended by Circular no. 3,246, of 7.14.2004).

· Circular no. 3,238, of May 17, 2004:

Opens Cosif[6] accounts to record financial centralization by credit cooperatives.

· Resolution no. 3,188, of May 29, 2004:

Authorizes cooperative banks to receive rural savings deposits, being the hiring of correspondents within the country, for such purpose, limited to rural credit cooperatives and free membership credit cooperatives.

· Resolution no. 3,253, of December 16, 2004:

Revokes Article 10(V) and Article 10 paragraphs 1 and 2 of the Regulation annex to Resolution no. 3,106/2003, that set a lower limit for investment in credits by free membership credit cooperatives.

[1] Mixed cooperatives counting with a credit section and federations and confederations, which do not operate as financial institutions, are not included.

[2] Data from the Office of the Rural Economy, Ministry of Agriculture, up to 1960, and from the Central Bank of Brazil, since 1970 to 2004. In the first decades of the last century, several credit cooperatives failed to register with the Ministry of Agriculture, at the time in charge of such registration. Fábio Luz Filho, in his book Cooperativismo e Crédito Agrícola, argues that in 1933 there were 315 credit cooperatives in Brazil, of which 77 registered and 238 unregistered.

[3] Financial centralization is the mechanism by which single cooperatives transfer funds to central cooperatives, as a result of liquidity limits internally set by, or excess cash of, single cooperatives, similar to deposit requirements in other banking institutions. Central cooperatives transfer to single cooperatives the yield of investing such funds transferred.

[4] Of which only one, Unicred do Brasil, is authorized by the Central Bank to perform typical financial institution activities. The remaining ones act as political representation of, and entities rendering services to, affiliated cooperatives.

[5] Federations are second degree cooperatives and political representatives of their associated cooperatives, acting towards fostering cooperativism, cooperative education and technical assistance. Central cooperatives, also second degree entities, have a more operating role, as the improvement, industrialization, storage, transport and marketing of products of their affiliate single cooperatives and, in the case of credit cooperatives, financial assistance and financial centralization, though also performing other activities of federations. The only federation of credit cooperatives operating in Brazil acts as a political representative and rends services to its affiliates, but is not authorized by the Central Bank to perform activities typical of financial institution.

[6] Cosif, the Financial Institutions Accounting Plan, is available at www.bcb.gov.br/?PUBMANUAIS.