Branching out.

Citibank has traditionally focused on high-end consumers and corporate accounts in Brazil, but at the beginning of 2003 the U.S. bank unveiled a new brand CitiFinancial to offer personal and mortgage loans to poor people. The move points to a growing trend in Brazilian banking to serve the underprivileged sector through separate subsidiaries. With an investment of US$5.5 million, Citibank Brasil will open nine CitiFinancial locations in 2003, and has plans to operate 100 branches within the next five years. While the U.S. banking giant had considered incorporating low-income lending as part of its service several times over the past few decades, the business model didn't fit, says Selina Vansetti, a former Citibank Brasil executive and now analyst for Brazilian banking at Moody's Investor Service. The solution was to create a separate subsidiary to assume high-risk credit clients. Citi, with 90 years in Brazil, was not the first bank to hit on this idea--several foreign and local banks had adopted it earlier, including Dutch bank ABN AMRO, which is the country leader in auto financing, and Brazil's Unibanco. The market has proven profitable even during tumultuous economic times. That's because interest rates charged on the small loans are as high as 40%. While default and delinquency are high in Brazil, many banks have found that the return on the credits offsets the dead beat borrowers.