Transcript Local Money Systems: Financial Inclusion and Reduction of

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
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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;
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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.
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Object of investigation: one Brazilian Community Development
Bank – Banco Bem (Bem [Good] Bank)
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In 2005: First exploratory research;
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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
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Development of Brazilian’s experience
of Community Development Banks;
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Analysis of secondary data (almost done)
Socio-economic characterization of the
area of Bem Bank’s activities;
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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
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Structured Interview with the managers
of the Bem Bank;
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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
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Application of a questioner in the
community (under way)
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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):
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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
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Only 15% has made an application for
credit in the last 12 month;
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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
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Formal Secretary for Solidarity Economy
inside the Ministry of Work and
Employment
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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
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Aims of the Solidarity Finance Program:
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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
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They are financial services with the
following features:
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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
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Official Aim:
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183 banks until 2010;
Total value to be invested in Community
Development Banks:
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R$ 16.000.000,00 (around US $ 10.000.000,00)
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Official Policy Towards Community
Development Banks
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Official Position of Central Bank
 Community Development Bank must have an
authorization by the Central Bank and fulfill the
following conditions:
1.
2.
3.
4.
5.
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.
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Community served by the Bem Bank
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Socio-Economic Features
Level of Education of the Respondents (%)
College - Complete
Level of education
College - Incomplete
High School - Complete
High School - Incomplete
Elementary / Secondary - Complete
Elementary / Secondary - Incomplete
Without Education
0,0
5,0 10,0 15,0 20,0 25,0 30,0 35,0 40,0 45,0 50,0
(%)
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Socio-Economic Features
Total Income of the Respondents' Family
Don´t know
Minimu Wages
More than 4
3a4
2a3
1a2
Less than 1
0
10
20
30
40
50
(%)
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Socio-Economic Features
Most important itens in the Family Budget (%)
Don´t know
Others
Leisure
Transportation
Education
Water
House rental
Clothing
Telephone
Health
Gas
Electricity
Food
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
90,0
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The Process of Bank Creation
Bem Art Wood
(aug. 2003)
Lend
Money
Bem Art and
Fashion (2002)
Lend
Money
Bem Nourish
(Nov. 2003)
Atelier of Ideas (2003)
(NGO)
Bem Cleaning
(Jan 2004)
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The Process of Bank Creation
Atelier of Ideas
Bem Bank
Bem Art Wood
Bem Art and
Fashion
CoopBem
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
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The circulation of the Social Money is limited to a
pre-determined area
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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)
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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
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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)
Types of
Credit
Maimum
Value
Interest
Rate*
Consumption
100
(only in social
money)
0
5,000.00
(officiall and
social money)
0.5% (first
credit)
1.0% (after
on)
Productive
Prerequisite
3 phone numbers of someone to give a reference;
One of these persons must be a customer of the bank.
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
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Features of Social Money System
Distribution of Credit
Type of Credit
Number
Value
Consumption
235
15,331.00
Productive
160
227,172,48
House Reform
Emergency
Total
103
229,146,80
3
1,108.66
501
472,758.94
Applications Wainting
Type of Credit
Number
Productive
119
House Refom
204
Total
323
Applicatitons not
approved
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These 501 operations were distributed among
around 250 persons
Total population in the community: 31.000
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Features of Social Money System
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Informal way to deal with default:
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Based on trust;
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How much you can pay?
Formal agreement with an official bank
(Caixa Econômica Federal):
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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
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Essential features that come from the
interviews:
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Slow progress: In 5 years of existence the
bank manage to attend only 0,8% of the
community:
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Poor management:
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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
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Capture of the experience by the group that
runs the project;
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High proportion of the borrowers has personal
relationship with the people that runs the project;
Difficulties in expanding trustful relationships
Leak of reserves
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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
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Points to think about:
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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:
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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,,GIM1038225-7823ATELIE+DE+IDEIAS+ATUA+EM+OITO+COMUNIDADES+DE+VITORIA,00.html
http://video.globo.com/Videos/Player/Noticias/0,,GIM1038226-7823ENTREVISTA+PRESIDENTE+DA+ASSOCIACAO+ATELIE+DE+IDEIAS,00.html
http://video.globo.com/Videos/Player/Noticias/0,,GIM1038227-7823ONG+REALIZA+O+MAIOR+SONHO+O+BANCO+COMUNITARIO,00.html
http://video.globo.com/Videos/Player/Noticias/0,,GIM1038228-7823OS+PROJETOS+DE+CONSTRUCAO+DE+MORADIAS,00.html
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Thank you
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