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Local Money System:Financial Inclusion and Reduction of
Poverty
Prof. Dr. Marco CroccoDr.Fabiana Santos
Laboratory of Studies on Money and Territory – LEMTe
Center for Regional Development and Planning – Brazil
IMTFI's First Annual ConferenceIrvine, November, 4-6, 2009
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Aim of the Research ProjectAim 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.
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)
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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
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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
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 Brazil:Number of bank branches / municipalities
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Financial Exclusion in Brazil:Percentage of municipalities without bank branches
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Financial Exclusion in Brazil:Percentage 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 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;
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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. 12
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:
1. The social money must circulate in a region with less than 50.000 inhabitants;
2. The social money must have an anchor in official currency.
3. It must be freely convertible in a preset, fixed, exchange rate to the official currency (one to one);
4. The social money can’t be used to pay taxes;5. Community Development Banks can’t accept deposits.
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Community served by the Bem Bank
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Socio-Economic Features
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0,0 5,0 10,0 15,0 20,0 25,0 30,0 35,0 40,0 45,0 50,0
Without Education
Elementary / Secondary - Incomplete
Elementary / Secondary - Complete
High School - Incomplete
High School - Complete
College - Incomplete
College - Complete
(%)
Leve
l of e
duca
tion
Level of Education of the Respondents (%)
Socio-Economic Features
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0 10 20 30 40 50
Less than 1
1 a 2
2 a 3
3 a 4
More than 4
Don´t know
(%)
Min
imu
Wag
es
Total Income of the Respondents' Family
Socio-Economic Features
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0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 90,0
Food
Electricity
Gas
Health
Telephone
Clothing
House rental
Water
Education
Transportation
Leisure
Others
Don´t know
Most important itens in the Family Budget (%)
The Process of Bank Creation
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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)
The Process of Bank Creation
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Atelier of Ideas
Bem Bank CoopBem
Bem Art and Fashion
Bem Art Wood Bem Nourish Bem Decoration Bem Buider
Bem Cleaning
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 (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”;
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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(R$100 = US$57; R$5,000 = US$2,850)
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Types of Credit
Maimum Value
Interest Rate* Prerequisite
Consumption 100(only in social
money)
0 3 phone numbers of someone to give a reference;
One of these persons must be a customer of the bank.
Productive 5,000.00(officiall and
social money)
0.5% (first credit)
1.0% (after on)
Indicated by 3 persons of the community;
Analist of credit from the bank visit and collected informations about the applicant;
A board gives the final decision.
House Reform
5,000.00(offical and
social money)
1.0% Indicated by 3 persons of the community;
Analist of credit from the bank visit and collected informations about the applicant;
A board gives the final decision;
Usually the customer of this type of credit has a permanent income.
* Plus 1% of administration fee
Features of Social Money System
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Type of Credit NumberProductive 119
House Refom 204
Total 323
Applicatitons not approved 44
Applications Wainting Type of Credit Number Value
Consumption 235 15,331.00
Productive 160 227,172,48
House Reform 103 229,146,80
Emergency 3 1,108.66
Total 501 472,758.94
Distribution of Credit
These 501 operations were distributed among around 250 personsTotal population in the community: 31.000
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?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
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Thank you
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