Local Money System: Financial Inclusion and Reduction of Poverty

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Local Money SystemFinancial 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

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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 Banco Bem (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.

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Development and Methodology of the Research

• Development of Brazilians experience of
  Community Development Banks
• Analysis of secondary data (almost done)
• Socio-economic characterization of the area of
  Bem Banks activities
• Analysis of official secondary data
• Analysis of a socio-economic survey made by the
  community it self. (half way)

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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)

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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)

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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

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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.

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Financial Exclusion in BrazilNumber of bank
branches / municipalities
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Financial Exclusion in BrazilPercentage of
municipalities without bank branches
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Financial Exclusion in BrazilPercentage of
Population living in municipalities without bank
branches
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Official Policy Towards Community Development
Banks

• Formal Secretary for Solidarity Economy inside
  the Ministry of Work and Employment
• Its 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

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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.

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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.

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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)

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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 cant be used to pay taxes
• Community Development Banks cant accept
  deposits.

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Community served by the Bem Bank
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Socio-Economic Features
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Socio-Economic Features
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Socio-Economic Features
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The Process of Bank Creation
Bem Art and Fashion (2002)
Bem Art Wood (aug. 2003)
Bem Nourish (Nov. 2003)
Lend Money
Lend Money
Atelier of Ideas (2003) (NGO)
Bem Cleaning (Jan 2004)
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The Process of Bank Creation

• Atelier of Ideas

Bem Bank
CoopBem
Bem Art and Fashion
Bem Art Wood
Bem Nourish
Bem Decoration
Bem Buider
Bem Cleaning
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The Bem Bank
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The Social Money
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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 (R1 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

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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

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Features of Social Money System(R100 US57
R5,000 US2,850)
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Features of Social Money System
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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

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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.

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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

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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 ?

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Others videos can be seen at

• http//www.youtube.com/watch?vc8m_YLu37U4
• http//www.youtube.com/watch?vY4JVJJvhWR8
• http//www.youtube.com/watch?vaGy_H_zsalU
• http//video.globo.com/Videos/Player/Noticias/0,,G
  IM1038225-7823-ATELIEDEIDEIASATUAEMOITOCOMUN
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• http//video.globo.com/Videos/Player/Noticias/0,,G
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• Thank you

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