Determinants of the Default Rate of Individual Clients in Brazil and the Role of Payroll Loans

Payroll Loans are a relatively recent type of personal loan in the Brazilian credit market, and therefore its effects on the default rate of individual clients are still rather unknown. In this sense, this study aims to evaluate the influence of payroll loans and selected macroeconomic variables, such as the GDP, consumption, unemployment, inflation and the interest rate, on the default rate of individual clients between 2004 and 2016 in Brazil. This was accomplished through the estimation of a Vector Error Correction model (VECM), and through the calculation of impulse response functions, the variance decomposition and the Granger causality. The results show negative long-term relationships between payroll loans and the default rate of individual clients. It was also observed that the default rate reacts negatively to variations in the GDP. On the other hand, the unemployment rate, the interest rate and inflation showed positive long-term relationships with the default rate, and for the consumption variable, the results were inconclusive. It is noteworthy that, except for the consumption index, all other relationships were in agreement with the literature and with the expected behavior, confirming, therefore, that the macroeconomic scenario played a determinant role in the behavior of default rates, and that payroll loans contributed to mitigate the default rates of individual clients in the period.