The Palmas Bank And Its Social Currency

by Joaquim Melo, June 2010.

[ This is part 2 of the article series on alternative currency systems. ]

Communitarian banks are financial and solidary services, networked, with an associative and communitarian nature, aimed at generating work and incomes in the perspective of reorganization of local economies, based on the principles of Solidary Economy. Its goal is to promote development of areas of low income, by fostering the creation of local networks of production and consumption, based on support to initiatives of solidary economy in its various spheres, such as: social-productive enterprises, services, support to commercialization (wineries, little markets, shops, solidary fairs), organizations of consumers and producers.

This definition was set at the Second Meeting of the Brazilian Network of Communitarian Banks, held between 18 and 21 April 2007 in Iparana (Ceará) and seeks to clarify an initiative that is gaining more and more space in the Brazilian economy.

The first Communitarian Bank in Brazil

Banco Palmas was the first Brazilian communitarian bank, opened in January 1998 in the Conjunto Palmeira, a poor district with 32 000 inhabitants, situated in the south of Fortaleza – CE, northeastern Brazil. In 1973, the first inhabitants came from expropriations conducted in the city coastal area. Most were fishermen who lived from the sea. The residents built their shacks spontaneously, resulting in a large slum, without basic sanitation, clean water, electricity, school or other public service. With the founding of the Association of Residents of the Conjunto Palmeira – ASMOCONP in 1981, has begun a process of organization of families. Through popular mobilizations and various partnerships, the Residents’ Association has been slowly building the neighborhood through communitarian and mutual help.

In 1997, although the district had improved its aspects of urbanization, poverty and hunger were devastating in the Conjunto Palmeira. ASMOCONP therefore decided, in assembly, to create a communitarian bank of social inclusion. It all started when, in a meeting of associates in January 1997, the board of ASMOCONP asked a question for the residents:
Why are we poor?
All, almost simultaneously, answered:
We are poor because we have no money.

The answer was so obvious that it couldn’t be true. Then ASMOCONP resolved to do research in the neighborhood, house by house, asking five questions:[1]

  • Mr(s), what do you consume today in food and materials for cleaning, hygiene and beauty?
  • In what quantity?
  • What brand of products?
  • Where do you consume them?
  • Mr(s), do you produce anything? What?

At the end of the study we learnt something surprising. The families of the Conjunto Palmeira[2] had an intake of BRL 1 000 000 (one million Reais or approx. one million USD at that time) per month. But, most of the purchases were made outside the neighbourhood and the products consumed were of famous brands, often based in other countries. Only 20 percent of the families of the Conjunto Palmeira declared that they did their shopping in their neighbourhood.

From these results ASMOCONP initiated a dialogue with the residents saying: We are not poor, we impoverish ourselves because we waste the money we have. We lose our savings due to the fact that we buy everything out of the neighbourhood.

During 1997, ASMOCONP organized 96 meetings with residents, farmers, traders and neighbourhood leaders, discussing the development of a project that could enable the income of the residents to circulate within the community itself.

The result of these discussions culminated in the creation of the Communitarian Bank of Conjunto Palmeira (later named Banco Palmas) on January 20, 1998, with only BRL 2 000 (approx. USD 2 000 at that time) that the Association borrowed from a local NGO.

The Palmas Bank has three characteristics:
management made up of the community itself; integrated local development which promotes education and local economics; and the local currency (Palmas).

This communitarian bank created in the neighbourhood an economic system that has a line of alternative microcredit (to producers and consumers), incentive instruments for local consumption (credit card and circulating social currency) and new forms of marketing (fairs and solidary shops) promoting local employment generation and income for many people. The Palmas Bank has three central characteristics: management made up of the community itself, including resource management; integrated local development which promotes credit, production, commercialization and training; the local currency (Palmas), complementary to the official currency (Real) and accepted and recognized by producers, traders and neighbourhood consumers, which creates a solidary and alternative market among the families. The Palmas currency is pegged and anchored in Real (1 Palmas worth BRL 1,00) which enables the productive enterprises of the community, such as trade, industry and services, to make “cambium” whenever they need to replace their stocks with products that are not manufactured in the neighbourhood. The Palmas is now accepted by 240 enterprises which offer discounts of five percent for those who purchase with the currency of the neighbourhood.

Beyond a traditional microfinance institution the Palmas Bank seeks to develop the neighbourhood holistically. The central idea is that if the neighbourhood develops, the people (producers and consumers) are also developing. Microcredit alone, and in isolation, is not able to overcome poverty and achieve optimum local development; territorial development is necessary to integrate multiple actions simultaneously. In this way the Palmas Bank has created some integrated programs and projects of solidary economy.[3]

Another key component of this integrated system is the social control of Palmas Bank and the intense community participation in the promotion of its development. This participation is organized by the Forum of Local Socioeconomic – FECOL. The Forum meets every Wednesday night. It is a space for the articulation of civil society, open to the participation of any resident of the neighbourhood, plural and nonpartisan. It is a space for dialogue and proposals related to socioeconomic and cultural issues of the Conjunto Palmeira and its surroundings. With an average participation of 60 residents (youth, adults, producers, traders and consumers), the FECOL rules on the life of the neighbourhood and the Palmas Bank.

The Palmas Bank has a unique form of organization because it operates in a different field of traditional finance, i.e., the field of finance of proximity or solidary finance. This field of practice

  1. has its origins in a variety of forms of economic solidarity based on processes of communitarian organization;
  2. involves an alternative logic of economic functioning through the introduction of values such as solidarity and confidence at the center of the microfinance activities with no intention to generate profits;
  3. involves a different kind of relationship with money because of its clear concern about the ethical purpose of funds invested in the financial operations;
  4. makes use of social currency with a twofold purpose: economic and political. Firstly, social currency is regarded as an instrument to increase local consumption and thus a way of strengthening the local economy via internalization of income. Secondly, social currency assumes a much more symbolic meaning, referencing the residents’ sense of belonging to a particular territory or place, i.e., a political symbol of the strengthening of local identity.

The Social Local Currency: Palmas

The Palmas is a currency established by Palmas Bank, complementary to the national currency, the Real. The initiative aims to make money circulate in the community itself, increasing the power of local commercialization, promoting the circulation of wealth in the community, generating employment and income locally.

The Palmas currency has some characteristics:

  1. The Palmas is backed by the national currency Real (BRL). That is, for each social currency issued, in the communitarian bank there exists a corresponding value in Real.
  2. The banknotes are produced with safety components (paper money, watermark, bar code, serial number) in order to prevent counterfeiting.
  3. Movement is free in the local market and those who purchase with social currency receive five percent discount, given by traders and producers, to encourage the use of money in the neighbourhood.
  4. Any producer or trader registered in the communitarian bank can exchange social currency for Real if they need to make a purchase or payment out of the neighbourhood.

There are three ways for the residents to acquire the Palmas currency:

  • Taking a loan in Palmas from the communitarian bank, without interest.
  • Exchanging Real for Palmas, to buy with discount in the neighbourhood trade.
  • Receiving part of their salaries in Palmas.

The wealth is generated from the internal circulation of the currency, promoting the economic development of the community.

The Palmas encourages residents to consume locally, increasing the local monetary base. The wealth is generated from the internal circulation of the currency, promoting the economic development of the community. The currency directly benefits the residents, who shop at a discount in local market, increasing their income. It benefits traders and producers through the increase of their sales. Finally, it benefits the whole community through the generation of jobs and income within their own neighbourhood.

In June 2010, the Palmas Bank’s records indicated:

  • 1 097 microcredit operations in the Palmas currency.[4]
  • 240 shops in the Conjunto Palmeira accepted the currency.
  • 45 000 Palmas were in circulation in Conjunto Palmeira.

In 2009 the Map of Production and Local Consumption showed that 95 percent of the population of the Conjunto Palmeira were already purchasing from within their neighbourhood. When compared with statistics for 1997, this figure shows the influence of social currency on the practice of local consumption, valuing products made within their own neighbourhood, contributing to the distribution of wealth and promoting environmental preservation.

By 2009, the Palmas Bank arrived at the following numbers:[5]

Palmas Bank: 2005 – 2009

Actions 2005 2006 2007 2008 2009
Credit Portfolio in Real 50 000.00 120 000.00 250 000.00 530 000.00 700 000.00
Credit Portfolio in Palmas 3 000.00 10 000.00 20 000.00 25 000.00 36 000.00
Default of the credit portfolio (Palmas and Real) 0,50% 1,80% 2,30% 0,75% 2,80%
Number of people assisted with productive credit (in Real) 70 150 230 380 490
Number of people assisted with credit for consumption (in Palmas) 70 97 170 310 340
Jobs generated (formal and informal) 40 69 110 180 160
Fairs held in the community (an average of 25 producers) 26 22 28 16 14
Sales in the solidarity shop per year (in Real) not applicable 25 000.00 53 000.00 76 000.00 55 000.00

In March 2008, through the Ministry of Labor and Employment (MTE), the Federal Government hired the Laboratory for Interdisciplinary Studies in Social Management, of Federal University of Ceará, to make an evaluation of the impact and image of Palmas Bank in Conjunto Palmeira. Some results, published in the book “Study of Evaluation and Impact of Palmas Bank” (UFC, 2008), should be highlighted here:

The public was asked, via questionnaires, if the Palmas Bank had helped in the development of the Conjunto Palmeira. Amongst the replies there was no-one opposing this point of view, and only two percent did not answer or did not know how to answer. Therefore, it is possible to assume that 100 percent of the valid responses said ‘Yes, Palmas Bank has helped in the development of the Conjunto Palmeira.
Next, it was sought to determine whether the Palmas Bank had contributed to improving the quality of life of the interviewees, and 90 percent said ‘Yes!’ When asked ‘how?’, the most common answers reflected the main purpose of Palmas Bank in Conjunto Palmeira: investments in the generation of employment and income in the neighborhood. 25,25 percent of the interviewees confirmed a rise in their personal income and another 20,2 percent said that they had got jobs.
In respect of the social currency, Palmas, 94 percent of interviewees said they believed it contributed to the development of the Conjunto Palmeira. However, when asked if they used or had used the Palmas currency, ‘only’ 58 percent answered affirmatively. These same interviewees indicated that the main reason for this was to help develop trade in the neighbourhood (43 percent). This was surprisingly forward-thinking and more noble of them than the 22 percent who said they used the social currency because of the discount offered in the Conjunto Palmeira.

The Communitarian Bank Network

To disseminate the social technology of Palmas Bank, in 2003, the inhabitants of the Conjunto Palmeira created the Institute Palmas (a Civil Society Organization of Public Interest – OSCIP).[6] Two years later, the entity had partnered with the National Solidary Economy Secretariat of the Ministry of Labor and Employment – MTE. The agreement allowed, in June 2010, a reach of 51 Communitarian Banks operating in Brazil: 1 in Pará, 1 in Maranhão, 3 in Piauí, 28 in Ceará, 1 in Paraiba, 4 in Bahia, 4 in Espirito Santo, 2 in Minas Gerais, 5 in São Paulo, 1 in Mato Grosso do Sul and 1 in Rio Grande do Sul. These communitarian banks are articulated and form the Brazilian Network of Communitarian Banks.

Through partnerships with the Public Banks of Brazil the Palmas Institute has organized and manages a Credit Fund which passes an initial appeal of BRL 30 000 (thirty thousand Reais) to each new Communitarian Bank created. Through a partnership with the NGO MAHITI (from India) there is now a software development called OURBANK, especially adapted for communitarian banks.

It is noteworthy that the communitarian banks are located in areas characterized by poverty and financial and banking exclusion, in Quilombos (maroon communities),[7] settlements, indigenous lands, regions of coconut breakers, isolated districts in the Northeastern semi-arid and urban peripheries.

From a legal standpoint, the Communitarian Banks work as OSCIPs of Microcredit. The Palmas Institute acts as a kind of umbrella, a network manager that provides legal support to all the other Communitarian Banks, which are mostly local associations with no institutional structure. As an OSCIP, the Palmas Institute may establish contracts and agreements with the government and the official banks, raising funds and technologies for the other associations.

Translated from Brazilian Portuguese by: Vinícius ELFO Rennó
Editing: Julie Ward

About the author

Joaquim Melo (* 1962) graduated in theology. A popular educator and community leader, he was one of the creators of the Palmas Bank. Currently he is coordinator of the Institute Palmas and an encourager of the Brazilian Network of Communitarian Banks. Jump up ↑ www.bancopalmas.com | The Palmas Bank on Wikipedia

Notes

  1. Jump up ↑ This research was named “Map of Local Production and Consumption”, and since then, is held in Conjunto Palmeira every three years.
  2. Jump up ↑ At that time the Conjunto Palmeirahad 3 500 families.
  3. Jump up ↑ See the complete project list at www.institutobancopalmas.org (old website) or www.bancopalmas.com (new website).
  4. Jump up ↑ Number corresponding to the period from 2003 to 2009.
  5. Jump up ↑ See complete list at: www.institutobancopalmas.org (old website) or www.bancopalmas.com (new website).
  6. Jump up ↑ A special Brazilian legal form for non-governmental organizations.
  7. Jump up ↑ Communities of escaped former slaves and their descendants.