Financial Services Innovations for US-Brazil Trade

 Encourage financing options besides simple credit, like factoring, leasing, and trade finance. This lowers risk by assuring repayments against accounts due or by keeping title and using legal instruments that can be executed by themselves. Another thing is that these businesses don't have to deal with many of the high costs that banks do when they first start up. For example, factoring and finance companies are better able to handle the high costs of doing business with small businesses. In this way, factoring and trade financing could play a big part, even though they can only help with working cash and not with investments. It's possible that leasing could help finance investments, but it hasn't been used for this reason very often. Some of these areas haven't made as much of an impact as they could have, in part because their legal bases aren't always clear and are sometimes questioned. 

Additionally, from a realistic point of view, the services they offer don't always make their unique traits clear

There are no laws that control factoring services, and the way it has been treated in civil cases has sometimes been seen as unfair. People still don't understand the difference between leasing and factoring and regular bank credit. Therefore, when it comes to leasing, it is sometimes thought that leases are very much like loans. It is also not always clear what the difference is between financial and operating leases. When it comes to factoring, discounting a payment or a check for a future date is the same thing as buying your debts. It will be hard to help these businesses grow in Brazil until there is a clear line between these new contracts and others. Still, there is room for these businesses to offer more services to make it easier for people to get financial services. The main results are summed up below. The factoring industry offers a lot of useful services to small businesses, and this could be made even better by giving it more credibility and increasing its reach. In reality, it's not clear enough right now what the difference is between real factoring and discounting bills or checks. Bringing together the different sets of laws that apply to the factoring business might help with this. A written law proposal on factoring has been sitting in Congress for years. Its final approval would be good for the business world. The legal system should also make it clear what the differences are between recourse financing and non-recourse financing. While financing with remedies is not illegal, it has not been recognized by the law. It costs factoring companies a lot because they can't do anything about dishonest deals by clients. We need to look into how factoring affects taxes. At the moment, they have to pay all financial transaction taxes and business taxes.

The Federal Supreme Court has had a case open to decide this for a while now

It might be worth looking into ways to give factoring companies more ways to get money, like by issuing business bills or debentures, which is already allowed in some places. If the suggested draft law is passed, this might be easier. Finally, some rules that make it hard to hold accounts in foreign currencies could be loosened to make overseas factoring easier. Leasing is mostly done by big businesses these days, because old equipment or hiring someone to do repairs for operational leasing makes it a good way to finance investments. For individuals, leasing has mostly been used by people who are "better off" to buy cars. Less wealthy customers and small businesses don't usually have access to leasing, so they aren't very important right now when it comes to expanding access. Leasing is governed by a lot of different laws, but for most reasons, it is governed by the Civil Code. As of the middle of 2003, a bill just for leasing was being written and was going to be sent to Congress. This is important because it will make the rules for leasing activities clearer. In Brazil, the rental business has changed a lot in the last ten years. Regulatory arbitrage in the tax system has had a big impact on the growth of the leasing industry and helped it boom in the late 1990s, especially when it came to leasing consumer cars. As the value of the dollar dropped, it had an effect on dollar-indexed loans. The courts also became more active, which tended to protect the lessee. This caused the market to shrink, and lessors stopped leasing to individuals. Another reason for the slow growth of leasing machinery and equipment is that there are other ways to get money, like the longer-term FINAME credit lines from the Banco Nacional de Desenvolvimento Econômico e Social (BNDES).

The person who leases an item can save money on taxes because rented items fall in value faster, by about 30% per year

The renter may also get tax breaks when they lease because they can write off their regular payments against their income. But it might be hard for smaller businesses to gain from this if they don't use the more complicated tax forms (called "lucro real" or "actual income") that allow itemized deductions instead of the simpler tax forms that are based on standard deductions and estimated income (called "lucro presumido"). Taking into account the residual value also made the tax rules for leasing more difficult. If the rent was low, leases were sometimes not seen as leases at all but as loans. The industry asked the Superior Court of Justice (Superior Tribunal de Justiça) to clarify the law. In 2003, the court said that the term "residual value" in lease contracts should include all payments, no matter when they were made during the contract's life. It will have a big effect on how much the industry makes itself appealing again. In Brazil, leasing is better for accounting because financial leases are recorded as operational leases. This lets companies buy capital goods without increasing their gearing (debt) percentage. But this way of handling finances is not normal. Overall, the leasing industry's accounting system needs to be looked at in order to (1) make it clear the difference between loans and leases, as well as between financial and operating leases; (2) see if small businesses can get write-offs against their income; and (3) make sure that accounting standards are the same around the world. One possible way to encourage practical leasing for small businesses is for financial intermediaries and commercial companies to work together. More competition in the industrial groups, which could be the lessees, would help this happen. Finance companies, which are easier for consumers to get into than bank accounts, are a good option for people with low and moderate incomes who need credit.