UPDATE 1-Brazil opens funding for fintechs through state development bank

(Adds monetary council decision, confirming previous story)

SAO PAULO, March 26 (Reuters) - Brazil’s monetary council on Thursday said the country’s fintechs will be able to obtain funding from development bank BNDES, as their usual financing channels have dried up due to coronavirus-linked market tensions.

The authority also said that fintechs will be allowed to issue credit cards as an alternative source of revenue.

Earlier on Thursday, Reuters reported that fintechs were in talks to obtain funding and possibly new business from development bank BNDES or similar institutions.

The monetary council also said that private equity funds will now be allowed to control fintechs working as digital lenders but only indirectly. Brazil’s central bank has traditionally restricted the ability of private equity funds to buy financial institutions.

Brazilian fintechs such as SoftBank-backed lender Creditas, payments company StoneCo Ltd and MercadoLibre Inc’s financial unit Mercado Pago, normally finance their businesses mainly through securitization deals in the capital markets.

But investors’ retreat from risk following economic disruptions stemming from the coronavirus outbreak has mostly blocked those channels.

In a statement, the monetary council said that fintechs are able to reach small entrepreneurs, even unbanked individuals, and may help the government implement public policies. It did not specify which services fintechs may provide in partnership with the government.

Brazil’s central bank has been working to promote more competition in the country’s financial sector, in which the top five lenders hold 82% of total banking assets.

On Monday, the central bank said it planned to inject 1.2 trillion reais ($233.81 billion) into Brazil’s financial system - mostly banks - to counteract the effects of the coronavirus.

There were more than 600 fintechs in Brazil as of June 2019, according to a study by Fintechlab. (Reporting by Carolina Mandl; Editing by Christian Plumb, Sonya Hepinstall and Cynthia Osterman)