Banco Palmas was the first of a series of community development banks that spread across Brazil and sought to strengthen the local economies of impoverished communities. The guiding concept behind a Banco Palmas-style community development bank is the idea that no inherently impoverished community exists, but rather that communities become impoverished as a result of repeatedly losing their own savings to outside interests. Following this logic, Banco Palmas created a model with the objective to grow and circulate wealth at the local level.
Banco Palmas was founded in 1998 in the Palmeiras neighborhood on the outskirts of the northern coastal city of Fortaleza. Palmeiras had a struggling economy; it lacked modern infrastructure and job opportunities were limited. Seeing this, the local organization Association of Residents of Conjunto Palmeira decided to apply the principles of a “solidarity economy” to establish Banco Palmas. The strategy for combating some of the negative effects of global capitalism aimed to stimulate economic development at a local level. Banco Palmas does this by deploying its capital through micro-loans that stimulate production and through local currency credits that stimulate consumption.
Banco Palmas’ loans have low interest rates and are dedicated to supporting local businesses. The borrower’s creditworthiness isn’t assessed using records like a credit report or a tax return; instead it is determined based on consultations with the borrower’s neighbors, a method that expands the pool of eligible borrowers.
The innovative consumption program involves offering zero percent interest loans in a local currency called “palmas.” This currency is backed by the bank and can be exchanged at a one-to-one ratio with Brazilian reals.
But it comes with a catch. The “palmas” can only be spent in the neighborhood of Palmeiras. These palmas are accepted by most local businesses. The bank encourages business owners to give small discounts to people that shop using the local currency. Doing so incentivizes people to spend their money at local businesses. Keeping the consumption power local fuels the neighborhood economy.
Over time, the framework spread to other parts of the country with the goal of stimulating development at the community level. For the Palmerias neighborhood, the program has directly created 700 direct jobs, indirectly led to 2,500 jobs, and increased local merchant sales by 30 to 40 percent.
There are currently 52 community development banks that follow the Banco Palmas model. Each, like the original, is the result of a community-led initiative. They strive to overcome resource limitations by organizing their communities around the goal of local economic development.
Overall, Banco Palmas’ great contribution to economic development is a model that incentivizes neighbors to work in unison to resist some of the threats posed by an encroaching global economy. It leverages economic principles to align a family’s interests with the neighborhood’s interest.
Learn more: www.institutobancopalmas.org