Through the “Banco Palmas” (a People’s Bank), Joaquim is pioneering a community-based economic system by identifying and developing the assets of his community.
A nova ideia
After years of working on projects to improve life in the favelas, Joaquim began innovating within the finance sector and has developed a new banking model that works both socially and financially. The key is that both the power and the support come from the community; everything is locally-based. This system involves elements of financial management as well as stimulation of production and consumption within the community.
All finance operations are coordinated through the People’s Bank, which feeds the network of local solidarity with a parallel currency, facilitating the sale of products made in the community, making incomes circulate within the neighborhood, and thereby promoting economic growth. Armed with a detailed map of local production and consumption, Joaquim offers lines of microcredit for those wishing to produce to meet local demand and another line that finances those who wish to purchase from local producers and merchants. The goal of the strategy is to create a sustainable and virtuous local economic circle, as well as to prepare this excluded population for life in the wider capitalist world.
The bank, unique in the entire world, has three central characteristics: management by the community itself, an integrated system, and the unique social currency. Joaquim believes that when management is conducted by the local community itself, the community increases its capacities and develops its technical and project management abilities as well as skill in negotiating with governments. An integrated system allows lending for production and consumption at the same time. The social currency, called “Palmas”, circulates in parallel with the official currency (Real), which is accepted and recognized by local producers, merchants and consumers, creating a solidarity and alternative market among people of the community.
According to DIEESE (Inter Trade Union Department of Statistics and Socioeconomic Studies), the unemployment rate in Brazil in 2002 exceeded 20 percent, and living conditions of unskilled workers created an opening for entrepreneurship. The IBGE (Brazilian Institute for Geography and Statistics) estimates that there are 10 million formal (35 percent) and informal (65 percent)microentrepreneurs. Most of them, however, work under poor conditions, with average monthly income of less than R$800, and most of them end up failing.
There is also a great lack of credit for production. Only 40 percent of the population has a bank account, and even for those that do, there are few options for financing. This lack of access to banking happens for two main reasons: the banks have other sources of income (such as purchasing government bonds), and according to SEBRAE (Brazilian Service of Support for Micro Enterprise), 36 percent of the financial institutions justify their reluctance to offer credit to entrepreneurs in terms of the lack of real guarantees. Thus there are few remaining options for financing for microentrepreneurs—only personal credit offered by banks, financiers or informal sources (i.e., loan sharks).
According to data from the national household survey, in Brazil there are 50 million people living in extreme poverty. In Ceará, the reality is even worse, since 55 percent of the population lives in a situation of absolute poverty, principally in slums (favelas) created in the 1980s on the outskirts of large cities such as Palmeiras. Ten years later, these regions continue to lack public services, including basic sanitation, running water, and other types of infrastructure necessary for healthy living conditions.
With the support of the Catholic Church and liberation theology, various communities on the periphery of large cities have started to organize into grassroots movements that involve schools, churches, daycare centers, and associations working together to improve community life. Another factor common in the large cities and their peripheries is a disparity between public services and the income needed to support them. Poor neighborhoods begin to have urban services such as electricity, sewage services, etc, which increases costs to residents (through increased property taxes, etc); however, the income of these communities doesn’t increase, resulting in a deepening of poverty, and even the exodus of community members. As Joaquim has seen, services without income to sustain them only serves to increase misery.
What is lacking is an income strategy that keeps people in the community. Many limitations still exist in the favelas that keep even resolute people with skills from escaping the cycle of poverty. They cannot produce because of a lack of credit, and when they produce, they cannot sell, because the community members cannot buy. Generally, residents prefer to purchase from outside, where there is greater supply and advertising, as well as better payment conditions. The result is that many small businesses fail, and local economic growth is stalled.
In this context, Joaquim has designed a system, rooted in the community bank, which allows people to produce and consume within their own community. His methodology has already been implemented in “Conjunto Palmeiras,” a community of 30,000 in Fortaleza. Despite its extreme poverty, R$1.2 million circulates in the community per month.
Joaquim’s idea is to create a system in which people can produce and consume locally, within a network of solidarity where production is carried out based on an estimate of local consumption. To get an exact idea of how much needs to be produced, a diagnostic is carried out by youth from the community, who create an annual map of local production and consumption, making it possible to know how much is being spent on each domestic item, and to estimate what should be produced. This diagnosis is essential to the development of all the other strategies.
To make possible this integrated system of local production and consumption, the Palmas Bank was created, with three important financial instruments: microcredit for production, commerce and services; the PalmaCard credit card; and the Social Currency. The credit offered by the Palmas Bank does not require documents, or any registered guarantees. Neighbors offer information about the person receiving credit, giving assurances that the person is responsible and has experience in the intended field of activity. To date, 1500 loans have been given out over five years, with 420 families served. The bank works with a variable system of credit and interest, to ensure the distribution of income, meaning those with more pay more to subsidize loans to those with less.
PalmaCard is the credit card of the Palmas Bank, which is valid only for local purchases. Each credit card has an initial value of R$20 (US$8), and can reach a maximum of R$100 (US$40). There are currently 520 families with the card, ensuring a volume of around R$8,000 (US$3,200) in small business in the neighborhood. The social currency, Palmas, works in a similar way. Through Projeto Fomento (Stimulus Project), when some resource is donated to the community, the value in the official currency (R$) is “cloned” with an equal amount of social currency (Palmas), resulting in the doubling of existing community resources. For example, the bank “cloned” R$50,000 to build a school. It produced exactly the same amount in “social currency”. The money, in Reais (R$), rather than being spent to build the school, was converted into microcredit for local entrepreneurs. These microcredits will have to be repaid to the bank in social currency (in Palmas). The local school was then financed using Palmas. The construction workers receive their salaries in Palmas and with this currency can make purchases in any commercial establishment in the neighborhood that is in the system. The construction material follows the same logic: the building material stores receive loans in Reais (R$) that they must repay in Palmas. Thus all the materials are purchased in Palmas. At the end of the construction project, what was before only R$50,000 is now R$ 100,000, and all of it keeps circulating within the local community. With the continual circulation of the currency, these values increase. Currently 30,000 Palmas (R$30,000) are circulating, and 94 commercial establishments in the community accept the alternative currency.
From the moment the client is accepted by the bank, they become part of a network of solidarity, with organizations that support the creation of jobs and incomes and that help to avoid bankruptcy (which has never exceeded 3 percent). A key part of this network is small, interdependent production units which are financed by the bank and operate under the umbrella and rules of the bank. These range from formal units of seamstresses to cleaning units. Each unit has between four to ten employees. The bank also offers a range of workshops for professional training and entrepreneurship, all with an emphasis on solidarity and maintaining community networks. This school of sorts does all the knowledge management for the bank and has prepared educational materials, reports, andother publications as well as training 1,600 people. A job bank helps ensure that individuals can make use of the skills and capital that they are gaining.
To stimulate the exchange of the local currency, exchange clubs bring together producers, consumers and service providers on a weekly basis. In addition to these venues, weekly street markets are held. The street markets are also important cultural events which reinforce popular culture and are social events in and of themselves. Projects for collective purchasing, which reduce the price and skip middlemen, are also encouraged and available for food and other necessities.
Recognizing that women face particular challenges of personal and social risk in the favelas, the bank’s Women’s Incubator aims to reintegrate women into the local production cycle. Part of the Incubator is the Urban Agriculture Laboratory, which acts as a space where families learn agricultural practices to carry out in their own back yards. The laboratory has already served 20 families, on projects such as poultry raising, composting, and growing flowers for sale. The Incubator is both a program and a physical gathering space to reinforce community at every level.
Joaquim’s wide-scale and holistic approach has attracted government attention: at first critical, the government then shifted to a positive endorsement. The project was inspected by the Central Bank for using parallel currency that was not the official Real. After an inspection of Conjunto Palmeiras, the project was recognized as a model community economic system, and was even recommended by the Central Bank itself to other regions.
Some recent impact statistics were measured by the State University of Ceará include:• Sales in commercial establishments in the community increased by 40 percent• Membership in the Association increased from 500 to 1,300 in two years• 300 new direct jobs and 600 indirect ones were created through the credit policies• 30,000 Palmas (social currency) are being used inthe community• Women increased their share of the association activities by 30 percent through the Women’s Incubator.
In terms of the clients of the Palmas Bank, 82 percent feel more responsible, 95 percent consider the Palmas Bank an agent in the eradication of hunger and promotion of jobs and income, and 54 percent feel more solidarity.
Joaquim believes that using these instruments of solidarity capital, sustainable production, and fair consumption, all of which are rooted in the community bank, can create a strong program for fighting poverty. He is currently supported by some international foundations and civil society organizations such as Oxfam and the Socioeconomic Solidarity Network of Ceará; he also has a strong relationship with government institutions and programs. Joaquim is already disseminating this idea to other cities with the support of SEBRAE and the Central Bank. He also intends to bring the Palmas Bank to neighboring regions, to expand the possibilities for consumption and partnerships in production. He plans to conduct the mapping research in eight new communities in the coming years and develop a unique currency for each. To this end, he is seeking to expand the support of other partners who can help him in replicating this idea.
Joaquim Melo had a very poor childhood in a housing project called Cidade Nova in the city of Belém (Pará). In 1978, he decided to join the parish seminary, because he dreamed of being a priest. However, six years later, as a follower of liberation theology, he felt very unsatisfied with seminary life, which involved living in luxury in a building, completely separated from the social problems of society. He learned of Cardinal D. Aluízio Lorscheider, who was seeking seminary students to live in favelas and work with the poor. That was how Joaquim moved to Fortaleza, to live with two other seminary students in the “rampa do Jangurrusú”, known as the garbage dump of the city. This is where he encountered the subhuman conditions of those living as garbage pickers. It was at this moment that he decided to become more involved with social causes.
After five months, at the invitation of the Cardinal, Joaquim went to live in the Conjunto Palmeira, a favela on the outskirts of the city with more than 30,000 residents and no infrastructure. There he completed his theological training. He also became engaged in social movements of the city, as well as in community movements. Joaquim began to organize with the Conjunto Palmeira Residents’ Association, which brought together churches, schools, daycare centers, cultural associations and residents’ associations. This group’s lobbying of the municipality, brought new resources and services for the community, such as running water, electricity, and garbage collection. During this period Joaquim played a leading role, and gained much respect for the struggles he had undertaken to demand peoples’ rights. During this time Joaquim’s work evolved away from the church, and he left the priesthood in 1989 to devote himself to community projects. As a result of an influx of funding from a French CSO, Joaquim found himself teaching in a new school and developing training courses for local leaders in urban planning, community organization, and project design and management.
He continued his wide-scale community work, becoming involved with diverse projects in the favelas. In the late 1990s, his work took focus as he realized the important relationship between the community building he had been working on and the central roleof economics and finance in social mobility. Thus, in 1997, he created the Palmas Bank (Banco Popular para Inclusão Social), devoted to solidarity economics. With the activities of the bank being developed, Joaquim had no more time to teach in public schools, or to work directly with a CSO. He wanted to dedicate himself fully to solidarity economics and to the challenge of creating the bank. So he decided to leave his job in the CSO and in the municipality of Fortaleza, just seven years short of retirement, and dedicated himself exclusively to the Palmas Bank. In 2003 he created the Palmas Bank Institute of Solidarity Development and Socioeconomics, whose mission was to disseminate the techniques of the Palmas Bank. He is currently president of the institution, dedicated full-time to the project.