Brazil’s community banks provide a lifeline during the pandemic

. Feb 07, 2021
community banks economy brazil Banco Palmas is Brazil's first community bank. Photo: Palmas/Facebook

In 1984, Catholic seminarian Joaquim de Melo Neto decided to relocate to an open landfill in Conjunto Palmeiras, the largest favela in the north-eastern city of Fortaleza. Preparing himself for ordination, he wanted to experience extreme poverty first-hand and help the community thrive. Upon arrival, he saw over 25,000 people living without water, electricity, sewage, or fixed income, sharing the land with countless rats and vultures.

After helping the community to organize itself, Mr. Melo began using his knowledge of European cooperatives to instill a sense of belonging and solidarity among the residents of Conjunto Palmeiras. Under the slogan “No-one beats poverty alone,” the favela became an official neighborhood, with basic sanitation, running water, and electricity.

</p> <p>But, unable to pay for these utilities, the residents of Palmeiras began selling their houses and moving out of the neighborhood. A survey at the end of the 1990s showed that the community spent a total of BRL 1.2 million on monthly purchases, and 80 percent of what they consumed came from outside the neighborhood. The solution, then, became clear: if the money stayed in Palmeiras, people would be able to afford to live there.</p> <p>This idea led to the birth of Banco Palmas, Brazil&#8217;s first community bank. Though it was initially looked upon with suspicion — even being investigated by <a href="">Brazil&#8217;s Central Bank</a> — Palmas soon became a benchmark and inspiration for community banks all over the country. There are currently 103 such institutions, organized by the <a href="">Brazilian Network of Community Banks</a>, set up in 2006.</p> <h2>Local currency</h2> <p>Banco Palmas began with a loan of BRL 2,000 (USD 367). This credit was then made available to the local population by way of a new currency — the &#8220;palma&#8221; — which would only be used and accepted within the neighborhood. Each palma is worth BRL 1, and while shopkeepers are not obliged to accept it, over 250 establishments in Conjunto Palmeiras permit locals to make payments in palmas.</p> <p>Users of the local currency also qualify for a series of benefits. Residents can take out interest-free loans in palmas, as well as receiving discounts at accredited stores. Recently, the currency went digital, allowing residents and clients to manage accounts in palmas using their smartphones.</p> <p>The Banco Palmas model has been repeated in locations that span the vast majority of Brazil&#8217;s states, being found in riverside islands in the Amazon, poor urban neighborhoods in the South, as well as in indigenous communities and settlements.</p> <h2>Software makes community banking easy</h2> <p>As a way of popularizing the social technology of its very own community bank, residents of Conjunto Palmeiras set up the Instituto Palmas in 2003. Two years later, the organization established a partnership with the Labor Ministry and the now-extinct Banco Popular do Brasil, a subsidiary of the government-controlled Banco do Brasil.</p> <p>This deal gave community banks more access to credit, turning them into <em>de facto </em>branches of the Banco Popular do Brasil. Instituto Palmas worked as an administrator, managing the network and providing a legal basis to community banks — many of which are local associations with rudimentary organizational structures.&nbsp;</p> <p>Instituto Palmas can sign contracts with the government and official banks to provide funds and technology for Brazil&#8217;s community banks. The network has benefitted over 200,000 people so far.</p> <p>Using software made available by Banco do Brasil, the Brazilian Network of Community Banks monitors the activities of each local organization, giving them advice to avoid mistakes and rectifying potential errors. As a result, all member institutions use the same credit fund and are connected via the online system.</p> <p>“Before, we had one branch. Now, we have 103. The whole of Brazil has signed up, supported by the federal government and universities. We serve millions of poor people across Brazil. [Federal cash transfer policy] <a href="">Bolsa Família</a> is important, but it&#8217;s not enough. People need work, income, support. Community banks reach where the others do not and can help generate income in that location, as well as organizing the population,&#8221; says Joaquim de Melo Neto, now an ex-seminarian.</p> <h2>Banks on the doorstep of remote communities</h2> <p>Where the majority of Brazil&#8217;s community banks are located, residents once had to travel for hours just to pay their electricity bills or receive their pension. Loans were impossible, and any chance of community development was unthinkable.</p> <p>This was the case in São João do Arraial, in the Northeast state of Piauí. With 7,000 inhabitants, the city has one of the lowest levels of human development in Brazil. According to data from the United Nations Program for Development, 77 percent of the local population earns less than half of the national minimum wage.</p> <p>The local economy is largely based on farming rice, corn, beans, and cassava, and raising livestock. According to data from city hall, roughly BRL 600,000 (USD 110,000) circulates in São João do Arraial each month, with BRL 250,000 coming from social security benefits, BRL 250,000 from the municipal government, BRL 70,000 from Bolsa Família, and just BRL 30,000 from local production.</p> <p>Isolated from the largest urban centers in Piauí state, the city decided to create its own community bank to mitigate its lack of access to financial services. Based on Banco Palmas, Banco dos Cocais was set up in 2007, with its own currency, the &#8220;cocal.&#8221;</p> <p>With banknotes featuring the faces of local cultural icons, the Banco dos Cocais also handles the salaries of public servants, collects municipal taxes, and distributes Bolsa Família benefit payments.</p> <h2>Community banks become essential in pandemic times</h2> <p>Twenty years after it was established, a survey by the Federal University of Ceará analyzed the effects of Banco Palmas on the residents of the Palmeiras favela. The research showed that 90 percent of the study participants improved their quality of life, 25 percent found work, and 23 percent opened their own small business. Seen as the major challenge for the Banco Palmas project, local commerce increased sales by 80 percent.</p> <p>During the <a href="">coronavirus pandemic,</a> community currencies became veritable lifelines for many remote neighborhoods. In the state of Ceará alone, community banks saw transactions hit BRL 8.2 million in the first half of 2020 — over 60 percent more than the previous year. Purchases in local stores hit BRL 4.7 million in the state, four times the total recorded in the first half of 2019.</p> <p>Between March and June of last year — when the Covid-19 pandemic began to take hold — the number of businesses who signed up to use community currencies more than doubled in Ceará, rising from 240 to 510, distributed across 40 peripheral neighborhoods of Fortaleza.</p> <p>&#8220;This was largely down to a high demand for credit,&#8221; explains Joaquim de Melo Neto, who is now the president of the Brazilian Network of Community Banks. In September of last year, he was chosen as one of 20 social entrepreneurs to take part in Changemakers Unidos, a collective effort to support innovative social projects across Latin America.

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Renato Alves

Renato Alves is a Brazilian journalist who has worked for Correio Braziliense and Crusoé.

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