Local Money System: Financial Inclusion and Reduction of Poverty

1. Local Money System:Financial Inclusion and Reduction of Poverty Prof. Dr. Marco Crocco Dr.Fabiana Santos Laboratory of Studies on Money and Territory – LEMTe Center for Regional Development and Planning – Brazil IMTFI's First Annual Conference Irvine, November, 4-6, 2009

2. Aim of the Research Project • The primary aim of this project is to investigate the potential of “Local Money Systems” (LMS) as an innovative instrument to reduce poverty; • A LMS can be defined as an agreement among persons belonging to a (geographically delimited) community directed to the creation of a local currency that will coexist with the national currency and will be used as means of payment in that community only. • Object of investigation: one Brazilian Community Development Bank – BancoBem (Bem [Good] Bank) • In 2005: First exploratory research; • 2009: What is intended now is to return to that locality and to analyze that experience after 3 (three) years of the previous research and 4 (four) years after the beginning of that experience.

3. Development and Methodology of the Research • Development of Brazilian’s experience of Community Development Banks; • Analysis of secondary data (almost done) • Socio-economic characterization of the area of Bem Bank’s activities; • Analysis of official secondary data; • Analysis of a socio-economic survey made by the community it self. (half way)

4. Development and Methodology of the Research • Structured Interview with the managers of the Bem Bank; • Two interviews was made by two different researchers at a different time (done); • Analysis of the two interviews makes possible to built a picture of the governance of the experience (half way) . • Application of a pilot questionnaire in the community attended by the bank; (done)

5. Development and Methodology of the Research • Application of a questioner in the community (under way) • Analysis quantitative of the results of the survey (to be done)

6. Financial Exclusion in Brazil • Data for Metropolitan Areas (2004): • 41% of the people interviewed has a bank account; • 67% of those that do not have a bank account show desire in have one; • People that lives in legalized houses have higher degree of access to bank account (36%), comparing with people that live in the poor communities (27%) • 46% had some kind of informal credit

7. Financial Exclusion in Brazil • Only 15% has made an application for credit in the last 12 month; • 2/3 of those were accepted; • 83% of the supply of loans were directed for personal proposes, being 44% for family emergencies; • 25% of the sample had debit card, and • 20% had credit card.

8. Financial Exclusion in Brazil:Number of bank branches / municipalities

9. Financial Exclusion in Brazil:Percentage of municipalities without bank branches

10. Financial Exclusion in Brazil:Percentage of Population living in municipalities without bank branches

11. Official Policy Towards Community Development Banks • Formal Secretary for Solidarity Economy inside the Ministry of Work and Employment • It’s objective is to stimulate the development of solidarity economy throughout the country; • The development of solidarity finance is one of the role played by the Secretary;

12. Official Policy Towards Community Development Banks • Aims of the Solidarity Finance Program: • To facilitate and increase the access of micro firms to credit; • To facilitate and increase the access to financial services of the poor population in a way to guarantee a higher degree of citizenship; • To reduce interest rate.

13. Official Definition of Community Development Banks • They are financial services with the following features: • Solidarity; work in networks; associative and community nature; • Directed to the reorganization of the local economy, with the aim of generate work and income, having the principles of the solidarity economy as a base.

14. Official Policy Towards Community Development Banks • Official Aim: • 183 banks until 2010; • Total value to be invested in Community Development Banks: • R$ 16.000.000,00 (around US $ 10.000.000,00)

15. Official Policy Towards Community Development Banks • Official Position of Central Bank • Community Development Bank must have an authorization by the Central Bank and fulfill the following conditions: • The social money must circulate in a region with less than 50.000 inhabitants; • The social money must have an anchor in official currency. • It must be freely convertible in a preset, fixed, exchange rate to the official currency (one to one); • The social money can’t be used to pay taxes; • Community Development Banks can’t accept deposits.

16. Community served by the Bem Bank

17. Socio-Economic Features

18. Socio-Economic Features

19. Socio-Economic Features

20. The Process of Bank Creation Bem Art Wood (aug. 2003) Bem Art and Fashion (2002) Bem Nourish (Nov. 2003) Lend Money Lend Money Atelier of Ideas (2003) (NGO) Bem Cleaning (Jan 2004)

21. The Process of Bank Creation Atelier of Ideas Bem Bank CoopBem Bem Art Wood Bem Art and Fashion Bem Nourish Bem Decoration Bem Buider Bem Cleaning

22. The Bem Bank

23. The Social Money

24. Features of Social Money System • The circulation of the Social Money is limited to a pre-determined area • main aim: to strengthen the local economy and increase the level of income (operation of the income multiplier); • Social Money is freely convertible into the official Money (R$1= $1 Social Money) • main aim: sustain the trust in and reputation of the social money; allow exchange and other types of relations with “external markets”;

25. Features of Social Money System • in order to increase its circulation in the area, the local businesses are stimulated to offer discounts when the social money is used (2%); • in order to be allowed to trade using social money, the owner of the business must be registered in the Bem Bank and must display in the shop an ad saying that the business accept the social money; • in order to receive productive credit from the Bem Bank, any producer or business owner must accept the social money in its business;

26. Features of Social Money System(R$100 = US$57; R$5,000 = US$2,850)

27. Features of Social Money System

28. Features of Social Money System • Informal way to deal with default: • Based on trust; • How much you can pay? • Formal agreement with an official bank (Caixa Econômica Federal): • People from the community can receive their social benefits in social money; • People from the community can pay their taxes and government bills (water, electricity) in social money at the official bank post at the Bem Bank; Slide 43

29. Preliminary Findings • Essential features that come from the interviews: • Slow progress: In 5 years of existence the bank manage to attend only 0,8% of the community: • Poor management: • No registry of customers; • No systemic records of the loans; • Dependent on the memory of the people that works on the bank; • Lack of capabilities.

30. Preliminary Findings • Capture of the experience by the group that runs the project; • High proportion of the borrowers has personal relationship with the people that runs the project; • Difficulties in expanding trustful relationships • Leak of reserves • House and productive credit; • In what extend these two types of credit are contradictory with the main objective of the bank

31. Preliminary Findings • Points to think about: • A bank with a stage of development that has to share the same space with banks in a more development stage; • Official policies: how to expand experiences that has been developed in an specific context to an normative public policy?; • What are the possibility of these experience to be used as a complementary instrument to fight poverty in a scale of a country like Brazil ?

32. Others videos can be seen at: • http://www.youtube.com/watch?v=c8m_YLu37U4 • http://www.youtube.com/watch?v=Y4JVJJvhWR8 • http://www.youtube.com/watch?v=aGy_H_zsalU • http://video.globo.com/Videos/Player/Noticias/0,,GIM1038225-7823-ATELIE+DE+IDEIAS+ATUA+EM+OITO+COMUNIDADES+DE+VITORIA,00.html • http://video.globo.com/Videos/Player/Noticias/0,,GIM1038226-7823-ENTREVISTA+PRESIDENTE+DA+ASSOCIACAO+ATELIE+DE+IDEIAS,00.html • http://video.globo.com/Videos/Player/Noticias/0,,GIM1038227-7823-ONG+REALIZA+O+MAIOR+SONHO+O+BANCO+COMUNITARIO,00.html • http://video.globo.com/Videos/Player/Noticias/0,,GIM1038228-7823-OS+PROJETOS+DE+CONSTRUCAO+DE+MORADIAS,00.html

33. Thank you