SÃO PAULO, Brazil – In 2012, 1.1 million Brazilians exchanged the country’s official money for unfamiliar currencies.
Arco-íris (rainbow), maracanã (mini-macaw), sabiá (thrush), vista linda (beautiful view) and liberdade (freedom) are among the country’s 103 forms of so-called social currency.
With relative parity to the Brazilian real, these currencies are managed by community banks created by the residents in poor suburban neighborhoods, settlements of former slaves – known as quilombos – indigenous villages and agrarian reform settlements. The communities’ goal is to stimulate their local economies by providing loans to business owners and consumer credit.
Brazil’s first social currency was introduced in 1998 in the Conjunto Palmeiras favela in Fortaleza, the capital of the state of Ceará.
Living in a poor community, the 25,000 residents consumed R$1.2 million (US$594,000) a month, with 80% spent outside the community.
“We realized that if these people spend money in the neighborhood, we would be encouraging local production and consumption,” said community leader João Joaquim de Melo Neto Segundo.
After 96 meetings with community residents and an investment of R$3,000 (US$1,485), Neto and other community leaders launched the Palmas Community Bank.
Focused on social development, the bank provides low-interest financing for the purchase of equipment by local business owners and provides up to R$600 (US$297) in credit to residents to buy food and clothing or make minor repairs to their homes.
The difference is these loans are not made in Brazilian reais, but in palma, the social currency created by Neto and accepted exclusively in the Conjunto Palmeiras favela.
In turn, the 240 local business owners who accept palma provide discounts of up to 10% on the price in Brazilian reais.
“The social currency makes money circulate in the community, which cannot be guaranteed with the Brazilian real,” Neto said.
In 2003, the Brazilian Central Bank filed a lawsuit against Banco Palmas, accusing it of interfering in the economy by issuing its own money, which is prohibited by the Brazilian Constitution.
However, a court ruled in favor of the community bank in Fortaleza, saying social currencies act in a complementary manner in a specific territory and are freely accepted – business owners only accept the currency if they so desire – and tied to the Brazilian real (business owners can exchange the currency for official money).
Fifteen years later, the situation has changed for the better in the Conjunto Palmeiras favela.
Local businesses saw sales increase by 30%, 3,500 new formal and informal jobs were created and 80% of the residents’ consumer spending was within the community.
Replicating the model
The Federal Government has closely followed the work being done by Banco Palmas. In 2005, it introduced the National Secretariat for Economic Solidarity (SENAES) under the Ministry of Labor and Employment (MTE).
That same year, SENAES and Banco Palmas created the Brazilian Network of Community Banks and started working to promote similar initiatives throughout Brazil. In 2012, there were 103 community banks – 53 in the Brazilian Northeast and 25 in the Amazon region.
Since its inception, SENAES has invested R$13 million (US$6.4 million) in funds to provide education, training and consulting services to these future “bankers.”
In 2013, SANAES is planning a 20% increase in the number of banks, alongside efforts to strengthen existing ones. The goal is to have 500 banks serving two million people by 2015.
“We not only want to launch new banks, but we also want them to have plans for sustainable operations and fundraising,” said Antônio Haroldo Mendonça, SENAES’ coordinator general of fair trade and credit.
Brazil’s community banks move approximately R$6.5 million (US$3.2 million) per year, with R$6 million (US$2.9 million) in performing loans and R$500,000 (US$247,000) in social currencies.
“This is a way of eliminating poverty,” Neto said.
In partnership with Caixa Econômica Federal, 25 community banks started paying out Bolsa Família (Family Grant) benefits and providing other conventional services, such as checking accounts and bill payment.
Despite the government’s consent, Brazil does not have any laws regulating community banks. Bill 93/2007, which deals with the issue, is being considered by Congress.
The São Paulo experience
Community banks reached São Paulo and Rio de Janeiro in 2009.
In Rio de Janeiro, the Cidade de Deus favela was the pioneer. In São Paulo, five community banks were inaugurated that same year.
One of them is Banco União Sampaio, created by the Popular Women’s Union of Jardim Maria Sampaio and Adjacencies. Residents of this poor neighborhood on the south side of the city use a currency called the sampaio.
In addition to loans up to R$1,000 (US$495) for local merchants, the bank grants up to 300 sampaios to residents who prove their low-income status.
“In the poor suburbs, where people have a hard time making it to the end of the month with the salary they receive, a 100 sampaio loan can help a lot,” said Edmílson do Nascimento, one of the leaders of Banco União Sampaio.