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Brazilian Senate approves establishment of simple credit companies

Brazil's Senate has passed legislation to allow for the creation of so-called simple credit companies in the country, subject to presidential approval, Valor Econômico reported.

Similar legislation obtained congressional approval on two previous occasions, but was vetoed on the basis of a central bank recommendation, the publication noted.

Simple credit companies are entities that offer cheap financing for micro and small enterprises, and their legalization aims to increase competition in Brazil's banking sector.

These companies will not be subject to deposit reserve requirements, will be prohibited from charging any fees, and will face an annual limit on the maximum amount of interest they can earn. They will also operate under certain borrowing limitations.

Additionally, simple credit companies will not be allowed to expand their physical presence beyond their host city and neighboring cities, according to the report. Once an individual sets up a simple credit company, they will be prohibited from opening other simple credit companies.