Foreign Equity Investments In Microfinance Institutions In Brazil*

A Brazilian Microfinance Institution (MFI) must be set up as a Sociedade de Crédito ao Microempreendedor e à Empresa de Pequeno Porte (SCMEPP), a company governed by CMN Resolution nº 3.567, of May 29, 2008, issued by the Brazilian Monetary Council (Conselho Monetário Nacional - CMN), which is a legal entity subject to the authorization and supervision of the Central Bank of Brazil (Banco Central do Brasil - Bacen).

This type of company can be incorporated either in the form of a closely-held company (companhia fechada), pursuant to the terms of the Brazilian Corporation Law (Law nº 6.404, of December 15, 1976, as subsequently amended), or as a limited liability company (sociedade limitada).

A Brazilian MFI is eligible to lend resources to micro and small entrepreneurs, but cannot take deposits from the public or from institutional investors, except for specific purposes defined by the Brazilian applicable law and regulations.

Under Brazilian law, any foreign organization can make an equity investment at a MFI or in any other legal entity subject to the authorization and supervision of Bacen, provided that such investment is duly authorized in accordance with the procedure outlined herein.

Article 52 of the Transitory Provisions to the 1988 Federal Constitution established that any investment by foreign individuals or corporate entities in Brazilian financial institutions, including setting up new, foreign-controlled institutions and the purchase of any interest, controlling or otherwise, in existing institutions, will be permitted only if authorized by the Brazilian government as a consequence of international treaties or reciprocal treatment, or because the investment is of interest to the Brazilian government.

The government has delegated to CMN the responsibility for analyzing and making recommendations regarding applications for foreign investment in the sector. As a result, a substantial number of investments by foreign investors in Brazilian financial institutions, most involving the control of such institutions, have been approved on a case-by-case basis and authorized by Presidential Decree. All these cases have been considered "investment of interest to the Brazilian government".

Once authorization has been granted, foreign investors and Brazilian investors will receive equal treatment unless express provisions of applicable law determine otherwise. Foreign investment in financial institutions must be registered with Bacen in the...