The landscape of Brazil’s private rural credit market was dramatically reshaped on February 1, 2024, with the arrival of Resolution 5,118 of the National Monetary Council. These sweeping changes, implemented swiftly, have left many stakeholders grappling with uncertainty and the need to adapt. While some may perceive this as a period of turbulence, we at Rivool see it as a transformational moment brimming with opportunity.

Indeed, the essence of Rivool, a web3 platform connecting credit seekers with investors, aligns perfectly with the evolving needs of this dynamic market. By leveraging the innovative power of blockchain technology, we offer a secure, transparent, and efficient solution that caters to both the demand for credit from rural producers and the desire for attractive returns with safety from investors. In short, Rivool is poised to thrive in the evolving landscape shaped by Resolution 5,118.

Understanding how the specific changes brought about by the resolution can open a window of opportunities through their potential impact on the rural credit market is important. We will then showcase how Rivool’s unique value proposition addresses these emerging challenges and presents a compelling growth opportunity for our company. Ultimately, we aim to demonstrate why Rivool is not simply weathering the storm of change but rather riding the wave toward a future of sustainable and inclusive growth in Brazil’s rural credit sector.

Before delving into the ramifications of these regulatory measures, it is imperative to provide a concise overview of their scope and intent. Noteworthy among these measures is (i) the prohibition on issuing Agribusiness Receivables Certificates (CRAs) backed by debt securities issued by publicly-held companies unrelated to the agribusiness sectors. This restriction aims to channel investments towards the agribusiness sector specifically, ensuring that CRAs are tied directly to agricultural activities rather than tangential financial instruments.

Additionally, the regulatory amendments outlined in measure (ii) entail the proscription of Agribusiness Receivables Certificates (CRAs) backed by credit rights stemming from transactions between related parties or financial transactions utilized for expense reimbursement. This stipulation is motivated by a commitment to safeguarding the integrity and transparency of CRAs, thereby forestalling their employment for purposes divergent from authentic agricultural transactions. Through this directive, regulatory authorities seek to curtail the issuance of CRAs linked to non-agricultural financial endeavors, thereby enhancing the efficacy of public policy in bolstering the agribusiness and real estate sectors. The overarching aim is to ensure that CRAs are underpinned by operations congruent with the objectives that precipitated their inception, thereby fostering a more robust and resilient credit market ecosystem.

Furthermore, the regulatory framework now enforces a prohibition, as outlined in measure (iii), on the issuance of Agribusiness Letters of Credit (LCAs) backed by advances on foreign exchange transactions, export credits, and various financial instruments including certificates, banknotes, receivables certificates, and debentures. This measure aims to rationalize and standardize the utilization of LCAs, ensuring their exclusive linkage to substantive agribusiness activities rather than speculative financial transactions. Through this regulatory intervention, clear delineations are established for LCA issuance to enhance the efficacy of this policy. The ultimate goal is to optimize the allocation of funds raised through these financial instruments, directing them more effectively towards financing the agribusiness and real estate sectors, thus fortifying these relevant sectors of the economy.

Collectively, these regulatory measures underscore a concerted effort toward restricting access to credit and curbing the proliferation of credit volumes facilitated through these financial instruments. Essentially, they impose stringent limitations on the demand for credit within the agricultural sector. This overarching intent becomes evident upon closer examination of measure (i), which stipulates that henceforth, only companies demonstrating that at least two-thirds of their consolidated revenue originates from agribusiness activities will be eligible to issue Agribusiness Receivables Certificates (CRAs). While ostensibly aiming to rectify perceived distortions — particularly concerning the issuance of CRAs by companies with tenuous connections to agribusiness, a practice that emerged following a 2016 decision by the CVM board — the resolution introduces a more intricate qualification criterion. This criterion, undoubtedly, entails heightened measurement costs and is likely to engender legal disputes, further complicating the qualification process for CRA issuance.

Moreover, measures (ii) and (iii) impose significant constraints on the volume of credit that can be sought, even by entities ostensibly meeting the qualification as mentioned earlier criteria. A survey conducted by Clube FII illuminates that had these measures been enforced at the onset of 2023, approximately 60.2% of the BRL 37 billion in CRAs raised throughout the year would have failed to comply with the new regulations. Notably, around 70% of these non-compliant fundings would have emanated from companies satisfying the two-thirds revenue criterion, implying a significant curtailment in access to credit within the sector. Consequently, it can be inferred that these measures portend a diminished volume of private credit sought by the agribusiness sector in Brazil, thus signifying a notable departure from prior credit dynamics.

The dispersion of funds in pursuit of new issuers emerges as a strategic imperative in light of the regulatory changes affecting Brazil’s rural private credit market. With banks constrained in their capacity to absorb the burgeoning demand, the onus falls upon alternative avenues, necessitating the exploration of new issuer prospects. Notably, Agricultural Investment Funds, colloquially referred to as Fiagros, currently wield substantial financial clout, managing nearly USD 8 billion in assets. Yet, despite their formidable presence, current emissions remain relatively scant, constituting a mere fraction of the myriad credit contracts — numbering close to 400 thousand annually — predominantly monopolized by the banking sector.

However, amid these regulatory transformations, a landscape with expansion opportunities beckons. The staggering number of companies boasting revenues exceeding USD 20 million — surpassing 7 thousand — signals a vast reservoir of untapped potential. Astonishingly, a mere 32 of these companies are publicly traded, hinting at a vast expanse of privately held entities ripe for engagement. Consequently, the imperative to diversify and amplify the issuer base becomes unequivocal, focusingon forging partnerships with these non-publicly traded companies to harness their untapped credit potential. As such, the pursuit of new issuers emerges not merely as a strategic imperative but as a gateway to unlocking hitherto untapped reservoirs of credit demand, thereby catalyzing the growth and dynamism of Brazil’s rural private credit market.

Rivool Finance stands poised at the intersection of opportunity and innovation within Brazil’s rural private credit market. With esteemed partners like BrBatel and Ecoagro, our platform has already garnered significant traction, boasting a demand exceeding USD 10 billion from over 3 thousand producers. This substantial influx underscores our enterprise’s expansive scale and inherent growth potential, positioning us as a frontrunner in facilitating access to lucrative investment opportunities within the agribusiness sector. Furthermore, with the potential for annual returns ranging from 9 to 12%, Rivool Finance offers investors a compelling proposition, beckoning them towards a realm ripe with promise and profitability.

At the heart of Rivool Finance’s operation lies a meticulously crafted business model engineered to optimize efficiency and mitigate risk. Through our B2B channel, we forge seamless connections with over three thousand issuers, ensuring a steady influx of high-quality investment opportunities. Moreover, our commitment to maintaining the integrity of our platform is unwavering, evidenced by the implementation of rigorous due diligence protocols. These protocols include three layers of risk analysis and a specialized SPV structure designed to fortify the integrity of our platform and safeguard investor interests. By prioritizing transparency, reliability, and efficacy, Rivool Finance emerges as a trusted ally for investors and issuers, offering a secure and streamlined pathway toward realizing their financial objectives within the dynamic landscape of rural private credit.

In conclusion, the transformative changes unfolding within Brazil’s rural private credit market present challenges and unprecedented opportunities for Rivool Finance’s growth and expansion. As we navigate through these shifts with a keen eye toward innovation and adaptability, we recognize them as a unique catalyst for our advancement. Our unwavering focus on companies intricately linked to agribusiness positions us strategically amidst the evolving landscape, offering a beacon of hope for the thousands of potential issuers grappling with bank credit restrictions and seeking alternative avenues for credit. By aligning our efforts with the pressing market needs, we stand poised to capitalize on this momentous juncture, leveraging our platform to bridge the gap between investors and issuers, fostering mutually beneficial partnerships, and propelling the growth trajectory of the agribusiness sector.

Moreover, our steadfast commitment to transparency, regulatory compliance, and meticulous credit assessment processes fortifies our position as a trusted ally within the fintech landscape. We are confident that our robust credit assessment procedures will mitigate investor misinformation and uphold our steadfast dedication to regulatory adherence. Additionally, our strategic establishment of a corporate presence in Switzerland, complemented by our operations in Brazil, underscores our commitment to global compliance and regulatory standards. This dual presence empowers us to seamlessly navigate the complex legal frameworks of both jurisdictions, ensuring that our operations remain above reproach while offering our investors unfettered access to lucrative opportunities within the Brazilian agribusiness sector. Through this strategic approach, Rivool Finance remains steadfast in its commitment to legal compliance, regulatory excellence, and the facilitation of sustainable growth and prosperity within the global agribusiness community.

Authored by

Cristiano Oliveira Associate Professor at the Federal University of Rio Grande — FURG andHead of Research at Rivool Finance.