Community Development Banks in Brazil are grass-root initiatives developed and managed by the community, working for the community, based on solidarity economy principles through which people in poor communities improve their local economies.
Problems and Purpose
In a context of economic marginalization and limited access to infrastructure and public goods, local movements in Brazil have risen in which residents organize themselves to discuss major community issues and try to find a solution together. The experience of Banco Palmas, the first Brazilian Community Development Bank (CDB), inspired the spread of this model across the country and resulted in the creation of the Brazilian Network of Community Banks (BNCB).
By definition, CDBs are grass-root initiatives developed and managed by the community, working for the community, based on solidarity economy principles. The purpose of the BNCB is to exchange experiences, advocate for solidarity economy, articulate policies and partnerships, and to support the creation of new CDBs.
Background History and Context
Following one of its meetings to discuss community problems and potential solutions, the residents’ association of Conjunto Palmeiras, a poor neighborhood on the outskirts of Fortaleza, Brazil, decided to establish a microcredit bank, Banco Palmas. The bank would lend money to producers and consumers in a local currency, in order to encourage wealth circulation in the area. The concept was an outcome of a survey conducted in the neighborhood, which revealed that most of the residents’ earnings were being spent outside the community, and could be used to enhance the local economy if purchases were made locally.
Different from conventional microcredit organizations based on market-oriented principles and profit goals, Banco Palmas was founded on the basis of the solidarity economy. Its ultimate goal was community development, as the bank itself was an expression of the residents’ needs and interests. It represented a community’s self-organization towards economic empowerment.
Banco Palmas’ approach, based on community agency for economic advancement, caught the attention of universities, governmental authorities and NGOs. Invitations to present its experiences at conferences and seminars across the country became routine. Similar initiatives then emerged, inspired by Banco Palmas’s methodology.
Organizing, Supporting, and Funding Entities
In 2004, when a number of Community Development Banks were already established, the first national conference of community banks was held with the support of the recently created National Secretariat of the Solidarity Economy, situated in the Ministry of Work and Employment (SENAES/MTE). SENAES was created by the newly elected left-wing government of Lula da Silva, which had a track record of engagement with social movements (and originated from one itself), and had decided to support the spread of CDBs across the country as a tool of local development. SENAES partnered with Banco Palmas, promoting seminars on the solidarity economy, creating a link between CBDs and the government, and providing grants for the establishment of new CDBs. Although recent government transitions mean that the Secretariat has been downgraded over time, such that it is now nearly non-existent, it had an important early role in creating momentum for the implementation of CDBs.
There is currently no financial resource for the BNCB and its nine current coordinators all work on a voluntary basis. Until 2014/15, the BNCB had SENAES’ support, which enhanced its voice and recognition in the political-economic arena and provided funds to promote meetings and conferences. However, in the face of political and economic changes in Brazil, the BNCB has faced difficulties in maintaining its activities. Even though the way in which the BNCB operates does not require large amounts of money, the lack of funds still affects its activities, such as meetings, travel, events and conferences. When the BNCB had the government’s support, they met four or five times a year, but now the network is much less active, mostly communicating through the internet and smartphone apps.
Participant Recruitment and Selection
Participants in the network are the CDBs.
Methods and Tools Used
What Went On: Process, Interaction, and Participation
The main features of a CDB in Brazil are:
- It is the community itself who decides to create a bank, becoming its manager and owner;
- A CDB offers two modalities of credit: one in Real and the other in social currency;
- The lines of credit encourages the creation of a local production and consumption network, promoting local development;
- CBDs support businesses with their commercialization strategies (fairs, solidarity shops, trading centres and others);
- A CDB operates in territories marked by high level of exclusion, vulnerability and social inequality;
- CDBs focus, above all, on beneficiaries of governmental social aid programmes and of compensatory policies;
- A CDB’s financial sustainability, in a first moment, is based on subsidies justified by its social practices utility.
The BNCB thus promotes a number of practices intended to maintain social control of CDBs through community ownership and active involvement in decision making. CDBs are to be managed by community associations or other civil society movements originating in the community, such as unions, NGOs or churches. Moreover, decision-making forums as well as CDB staff should be composed of local residents [1].
CBDs present different levels of community engagement based on facts related to their origin, partnerships, financial capacity and advocacy efforts. Whilst the BNCB provides general guidance, since community banks are intended to address local issues, they have the freedom to design their own programs, projects and strategies according to their priorities.
Decision-making forums as well as CDB staff should be composed of local residents [2]. Residents should be involved in key decisions to be taken by the bank, such as the appointment of the head management team and the definition of the social currency to be used. The Executive Board (Conselho Gestor) is the main deliberation body in the structure of most CDBs. It is composed of social movements, CDB staff and, in some cases, local authorities.
There is also another decision-making space where residents come together to discuss general community issues, which include decisions on the community bank. These are usually called Local Development Forums and are composed of residents, local entrepreneurs and social movements. Its discussions around the bank range from the bank’s activities to social projects to community events. The same forums responsible for making all the bank’s relevant decisions are also the places where results are presented, so that participants can make adjustments to the bank’s strategies and programs.
Loan requests are analysed separately based on consultations made by credit agents with the requester’s neighbors to collect information on their profile, such as their reputation as a good or bad payer. When a resident comes looking for credit, the bank also takes other elements into consideration, such as their attitude towards the community and if they are a good neighbor. People involved in cases of child labor or perpetrating domestic violence will not have the bank’s support. In another example, the total amount of a loan requested was denied to a resident because he wasted too much water by washing his motorcycle every day, in a community of the Northeast Region where droughts in the countryside have a long and problematic history. CDBs thus also build communal values.
CDBs’ functioning follows an engagement logic, putting participation into practice in terms of enabling broad resident presence in those associations in control of the bank and in key decision-making forums. This presence is not necessarily direct, but also by representation. For instance, among the 31,000 residents of the Community of São Benedito, in Vitória (capital of Espírito Santo, Southeast Region), an average of 50 to 60 usually show up for the meetings, although formal community leaders present at the forums are expected to bring the discussions to their respective associations, spreading the word all over their neighborhood. In this sense, community leaders are key to representing residents’ interests in the forums, rather than expecting direct participation by a high number of residents. While community leaders may reflect legitimate community interests and aspire to the best for their community, it is, of course, difficult to ensure that residents are actually being heard through representative structures. Reasons for a potential break in communication vary from residents’ lack of interest to engage in discussions to leaders’ lack of capacity to communicate effectively.
Decisions on issues of transparency and accountability also take place at the CDBs’ forums. Social media and websites are commonly used as communication channels between the bank and the community. Besides invitations for events and news from the community, these channels may provide financial reports. For example, Banco Palmas used to disclose financial information on its website, and completed activity reports (finances, courses, partners, events) up to April 2013 are still available [3]. According to the interviews, in one of the CDBs, financial results also used to be presented in a public square. However, the financial disclosure in a public place also raised the attention of criminals in the money retained in the bank. Following a few robberies, the practice was discouraged and numbers are now only disclosed internally and during the local forums.
In addition to these methods, it is important to acknowledge that there are informal ways in which people get to know the financial conditions of the bank. Since the bank is run and fully staffed by residents, information seems to flow freely from inside out.
Influence, Outcomes, and Effects
As of 2019, the BNCB has 113 CDB members, located all over Brazil, from the Amazon forest in the North, to the very South. The network is spread through 90 cities, in 20 out of Brazil’s 27 states [4]. ‘They are where no one wants to go – poor remote areas, riverside villages, quilombolas’ [5] in fishing villages and excluded poor urban or rural areas in general. The first impact of CDBs is thus to create local financial inclusion in places that seem to be forgotten by the authorities and where commercial banks are rare.
As a project built by the community, CBDs’ existence depends on residents’ mobilization, community recognition and collective control. Beyond financial inclusion and economic benefits, this process of engagement also supports community members’ voice and agency in other social, economic and political spheres, enabled by a greater sense of autonomy, freedom of choice and self-confidence [6].
Analysis and Lessons Learned
Over the last two decades, many microcredit initiatives arose in Brazil. Public and private banks attempted to include the poor as a target audience for some of their services. This is broadly related to the popularization of microcredit by relevant international institutions, such as the International Monetary Fund (IMF) and the Inter-American Development Bank (IDB), among others [7]. The Grameen Bank’s experience in Bangladesh in the 1970s, under the leadership of Muhammad Yunus, pioneered and inspired this approach internationally. Nonetheless, in Brazil these microfinance services were only unlocked after the monetary stabilization in the late 1990s that finally overcame a long period of systematic inflation.
Despite the initial excitement, however, none of the large microfinance institutions achieved the level of participation that Banco Palmas did. The bank’s social ties and the way in which it was conceived inside the community established crucial elements of its success. Interestingly, it was originated from dialogues among community leaders who had only basic education and had never heard about Muhammad Yunus [8].
The participation experience of Banco Palmas was seen by the new government in 2003 as a promising means to enhance local development, and one that could be replicated across the country. The national government (through SENAES), local governments, universities and commercial banks – both public and private – demonstrated interest in becoming involved and supporting the spread of the model. In fact, they all proved to be important actors and played a role in the development of the BNCB by providing funds, technical expertise, adjusting policies or simply recognizing the movement and strengthening its voice. In this context, the BNCB emerged as a point of articulation and a national reference for community banks. Its principles and guidance provide a recipe for the establishment of new CDBs based on community participation, and its Terms of Reference is a significant tool to achieve that.
It is essential to have a financial sustainability strategy, crucial for maintaining the bank’s operations. After all, a CDB cannot provide microcredit and other financial services, or be a place for cultural and political expression, if it cannot survive. There are internal questions within the BNCB concerning challenges to CDBs’ financial operations posed by the current national, financial and legal framework. It was not until a new law was passed in 2013 that CDBs could create their own bank accounts and issue electronic currency, provided they built their own digital platform (e-dinheiro). Due to this law, CDBs are now able to offer an array of services that previously only retail banks could provide. However, it seems that there are a number of other areas that still lack financial regulation from the national authorities; those which could enlarge CBDs’ portfolio of services and benefit their sustainability. Future research needs to explore how this legal framework impacts CDBs’ financial sustainability.
See Also
References
[1] Instituto Banco Palmas (2007) Termo de Referência dos Bancos Comunitários de Desenvolvimento, II Encontro da Rede Brasileira de Bancos Comunitários, April, www.institutobancopalmas.org/termo-de-referencia-dos-bancoscomunitarios-de-desenvolvimento/ (Accessed 23 June 2019)
[2] Ibid.
[3] Instituto Banco Palmas (2018) ‘Números’, www.institutobancopalmas.org/ numeros/ (Accessed 21 June 2019)
[4] Banco Palmas (2018) Manifesto Banco Palmas 20 Anos, https://es.scribd.com/document/369586788/Manifesto-20-Anos-BancoPalmas#fullscreen&from_embed (Accessed 16 October 2018)
[5] Afro-Brazilian communities first settled by escaped enslaved folk during slavery period. Interview with M. Vale by Gabriel Aragao, 17 April 2019
[6] Raposo, J. and Faria, M. (2015) ‘Banco Comunitário e Moeda Social: Organização Comunitária e Desenvolvimento Local’, Organizações em Contexto 11.22, http://dx.doi.org/10.15603/1982-8756/roc.v11n22p551-569 (Accessed 31 October 2019)
[7] França Filho, G.; Silva Júnior, J. and Rigo, A. (2012) ‘Solidarity Finance through Community Development Banks as a Strategy for Reshaping Local Economies: Lessons from Banco Palmas’, Revista de Administração (São Paulo) 47.3: 500–15
[8] Instituto Palmas (2010) Banco Palmas: 1º Banco Comunitário do Brasil – 100 perguntas mais frequentes, https://pt.slideshare.net/bancopalmas/bancopalmas-100-perguntas-mais-frequentes (Accessed 21 October 2018)
External Links
http://www.institutobancopalmas.org/
Notes
The first submission of this Participedia entry was adapted from a case study by Gabriel De Sousa Aragao and Asier Ansorena in collaboration with the Institute of Development Studies as part of the research project 'Linking Participation and Economic Advancement’ licensed and reproduced under Creative Commons (CC BY 3.0). Original source, including the full original case study and methodology can be found here: