Directed credit versus free credit: why half of the cheap money makes the other half expensive

Sit down to talk with any Brazilian entrepreneur in the services sector, manufacturing industry, commerce, or technology, and ask a simple question: what is the biggest obstacle for you to expand your operation this year? In nine out of ten conversations, the answer will be immediate: the absurd cost of credit for working capital and investment.

While large multinational corporations or specific sectors manage to raise funds at rates close to or even lower than the CDI, the vast majority of Brazilian companies that go to a bank counter to borrow in the so-called free credit market encounter effective rates that seem to belong to another economic planet.

Why are the bank spread (the difference between what the bank pays to raise the money and what it charges the final borrower) and business interest so high in Brazil? Beyond the fiscal problem that keeps the neutral interest rate around 5% real per year, there is a typically Brazilian microeconomic distortion: the half-price ticket system in the credit market.

1. Two markets that do not pay the same bill

When we look at the Monetary and Credit Statistics released monthly by the Central Bank of Brazil, the total stock of loans and financing in the National Financial System hovers around R$ 6.2 trillion to R$ 7.0 trillion (approximately 54% to 55% of GDP).

The curiosity that few observe is that this pie is split almost in half into two completely distinct regimes:

1. Directed Credit (about 42% to 45% of the entire stock): these are resources that, by force of law or government regulation, must mandatorily be lent for stamped purposes (rural credit, real estate financing via savings and FGTS, and lines from public development banks like BNDES), with capped or heavily subsidized interest rates.
2. Free Credit (about 55% to 58% of the stock): this is where the rest of the real economy resides, including the discounting of trade bills, working capital for small and medium-sized enterprises, vehicle financing, personal loans, and credit cards. Here, rates are defined freely by risk and the cost of funding.

Reference source: historical series of the Monetary and Credit Statistics of the Central Bank of Brazil.

2. How directed credit sabotages the power of the Selic

At first glance, creating directed credit lines with cheap interest seems like a generous idea to stimulate development. In macroeconomic practice, however, when this direction reaches almost half of the entire financial system, it generates two severe side effects documented by the Central Bank itself and by the IMF.

The first effect is the obstruction of monetary policy transmission channels. Imagine you are driving a car at 120 km/h and need to reduce speed before a curve (contain inflation). In a normal OECD country, when the Central Bank steps on the brake (raises the basic interest rate), the four wheels of the car brake together.

In Brazil, since 43% of credit is directed at rates that barely change when the Selic rises, two wheels of the car are disconnected from the brake pedal. To manage to stop the vehicle using only the two wheels that respond to the command (the 57% of free credit), the Brazilian Central Bank is forced to step on the brake with twice the force! In other words: the Selic rate needs to rise much higher and stay high for much longer because half of the economy's credit is insensitive to it.

The first effect is also related to cross-subsidization: when regulation forces banks to allocate huge slices of sight deposits and savings to operations with low or capped margins, the profitability and administrative cost of the banking infrastructure end up being recovered in tariffs and spreads charged to free credit clients.

3. The anatomy of the spread: collateral, taxes, and delinquency

Beyond the division between free and directed, the Bank Economy Reports of the Central Bank break down the other ingredients that make free credit so expensive in Brazil:

• Delinquency and collateral recovery cost: more than half of the Brazilian banking spread comes from losses with delinquency. In Brazil, when a corporate or individual debtor pledges an asset as collateral and fails to pay, the legal process to recover that asset can take years. On the global average, creditors recover more than 70 cents per dollar lent in real collateral; in Brazil, historically less than 20 to 30 cents were recovered (a scenario that the recent Legal Framework for Collateral attempts to improve).
• Fiscal wedge and compulsory reserves: Brazil is one of the few countries in the world that charges a direct tax at the source on those who take out loans (IOF), in addition to taxing intermediation revenue with PIS/Cofins and applying higher CSLL tax rates on financial institutions. All of this is passed on entirely to the final borrower at the end.

4. Practical lessons for your company's financial management

While the country gradually advances in microeconomic reforms (such as the Positive Registry, Open Finance, electronic receivables duplicates, and bringing BNDES TLP closer to market rates), business leaders need to operate with financial intelligence:

1. Never finance long-term projects with short-term free credit lines: using guaranteed accounts or traditional bank working capital to pay for the development of new software or the purchase of equipment is the fastest recipe to transfer all your operating profit to the bank.
2. Use your receivables and your customer chain as clean collateral: anticipation of performed receivables from large customers or Credit Rights Investment Funds (FIDCs) usually have drastically lower rates than unsecured loans.
3. Map out innovation funding lines for R&D: if the Brazilian system has earmarked windows for innovation and engineering (such as Finep and BNDES lines for digital transformation and national technology development), a well-organized engineering company with audited accounting should not leave this resource on the table while its competitors use it.

Continue deepening your knowledge: read also Why Brazil's neutral real interest rate is 5% per year (and what that does to companies) and Public debt in Brazil: why the Central Bank says 82.9% of GDP and the IMF calculates more than 93%?. Also explore the Brazil 2050 Agenda with an interactive simulator and the Brasília Arcade.

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References and verifiable readings

• Banco Central do Brasil (BCB). Relatório de Economia Bancária (REB): Decomposição do Spread Bancário e Crédito Livre vs. Direcionado.
• Banco Central do Brasil (2026). Estatísticas Monetárias e de Crédito (SGS).
• Bonomo, M., Brito, R. D., & Martins, B. (2015). The Aftermath of the 2008 Crisis in Brazil: Earmarked Credit and Productivity.