Banco do Brasil promotes Community Development Banks for the poorest

Banco do Brasil has the highly important commitment to contribute to the economic development of Brazil’s various regions. Along this line, it has been working with Instituto Palmas on preparing methodology to create Community Development Banks.

Community Banks are integrated financial systems that support production chains in impoverished communities situated on the outskirts of large cities or in rural areas, agrarian reform settlements, and indigenous communities.

The basic characteristics of Community Banks are the following: (1) Management by the community itself, including the coordination and administration of financial and human resources; (2) Establishment of an integrated local trade system by stimulating production, marketing and training simultaneously; (3) Creation of a social currency, known as local currency, accepted only for commercial transactions within the community itself, being recognized and valued by local producers, merchants and consumers, and thus creating a solidary and alternative market among families; and (4) Supply of targeted productive microcredit, banking products and services, thus encouraging financial inclusion by the
population at the base of the pyramid, without any need for people to travel to the large urban centers.

The main objective of a Community Bank is to produce income in highly impoverished communities with heavy unemployment, by stimulating
the creation of solidarity networks between producers and consumers in such a way that the wealth produced is invested in the community itself through the granting of microcredits to promote the production of small and micro entrepreneurs and of consumption microcredits for low-income population sectors, thereby energizing the local economy.

Social currency is used to incentivize local production and trade. It is backed by national currency –in other words, for each unit of social currency that is issued, the Community Bank holds one unit of national currency. The difference lies in the fact that social currency is accepted for commercial transactions within the community. Several promotional and discount measures have been worked out to encourage its use, such as the fact that a unit of social currency buys more than one unit of local currency, making it more competitive.

This competitive differential in relation to local currency favors the circulation of the wealth that has been generated within the community itself, expanding local commercial power, increasing the wealth in circulation and creating jobs and income. Producers wishing to buy something that is not available in the community can exchange specific sums of social currency for national currency in the Community Bank.