Report 5 (of 5): Banking on the Barrio - Brazil

Introduction

In Brazil, saving schemes are not popular among the majority of the population. Hyper-inflation and hard times have meant that saving money has been either impossible or simply unrealistic. In 1987 the Brazilian Government introduced a programme of mutual aid housing for its urban population, called mutirao. The mutirao programme offered grants to community organisations to pay for materials for house-building or renovation through self-help. In most areas the programme ended in 1990, with many of the targeted 400,000 homes never built.

© Mona Serageldin

The programme continued in one of the largest and poorest cities in north-east Brazil, the Metropolitan Region of Fortaleza, where more than one fifth of the 2.5 million inhabitants live in favelas or slums, illegally squatting on land with few services and poor living conditions. An estimated 40 per cent of these inhabitants are illiterate. Even here the programme has not had the impact required and many are left without adequate housing.

A positive outcome of the mutirao programme has been to encourage the creation of community funds to be managed by the many popular local associations and socieities.

Community Funds

The Bancos Des Palmas or Palm Bank is one example of how community funds have been used as a resource for survival by those excluded from employment, education and housing. Located in the Palmeira District in the south of Fortaleza, this bank has been set up to provide micro-credit to families throughout the community.

Palmeira is a slum neighbourhood with a population of about 31,000 (around 5,000 of these are families), and 80 per cent of which have a family income below that of two minimum wages. The Association of Neighbours of the District of Palmeira (ASMOCONP) is one of the largest groups in the area. This association, in partnership with Cearah Periferia (a local NGO), the public foundation PROFITEC (local government), and Prorenda (a programme of technical co- operation between local government and GTZ (the German development agency) created the Palm Bank or Bank of the People.

The bank was set up to fight poverty and to improve the living conditions of the residents of the district of Palmeira, through local economic development, encouraging community mobilisation and the re-establishment of community spirit. Before the bank was set up, local producers rarely sold produce to their neighbours and the local residents tended to buy their goods elsewhere. By increasing sales within the settlement, the association hoped that small entrepreneurs would have more income and be able to expand their enterprises, as well as giving the residents a better deal.

© Mona Serageldin

Meetings with local traders, producers, families and the local government were the first step towards establishing the bank. The bank started with only ten customers, from a loan of 2,000 Brazilian Reals (around US$700) given by a local NGO, Cearah Periferia, and the sponsorship of two community members as the first staff of the Bank from the local government. Due to the overwhelming demand for credit, Cearah Periferia agreed to a further loan of 30,000 Reals (around US$10,500), to be repaid over two years, together with providing technical support. This money is kept in an account at the Bank of Brazil to ensure its security.

Credit Facilities

With a much larger amount of financial capital, it was possible for the bank to begin providing different financial products. The bank offers four main credit facilities:

Micro-credit

Micro-credit or small loans are provided for production, commerce or services for existing and new businesses such as small textile factories, ice cream carts or food stalls, and has benefited at least 420 families. Micro-credit is also provided for women to enable them to be more economically active and to be able to buy food and shelter. So far this has benefited 120 families in Palmeira.

The value of the loans for micro-enterprise development varies between 10 and 300 Reals (US$3 - $100) and is repayable over a six-month period at an interest rate of 2 per cent per month. Sixty per cent of loans are for small shops or stalls selling goods such as snacks and drinks, while the remaining 40 per cent is given to workshops making products such as clothes, shoes and bags. So far the bank has made 70 small loans for productive activities.

Credit card

The PalmaCard enables families to obtain goods in local stores and not have to pay for them until the following month, without interest and on a date agreed by the family. This not only allows families to obtain goods ahead of earnings, but also ensures local products and services are bought, promoting economic growth among the community. This has benefited at least 520 families and, during the first three months, sales of local goods increased by 10 per cent, directly generating 20 new jobs.

The main objective of the bank is to guarantee micro-credit for local production and consumption. Any member of the residents' association can apply to join the scheme and receive a PalmaCard, but they must meet the basic requirements of the bank. Firstly, a member of the bank visits applicants to assess whether or not they are a good credit risk, but no papers or guarantees from friends are needed. Instead, family members and neighbours are asked about the candidate's drinking habits, existing debts and honesty.

If the reports are good, the applicant is then asked to meet with the committee of the bank and the association. In 80 per cent of the cases, the applicant is the woman in the family. They are asked to sign a contract with the bank and, if they have deposited savings of 20 Reals or more (about US$7), they are given a PalmaCard worth twice their savings. Usually, this whole process takes no more than three days to complete.

Each card holder has a credit limit equal to twice their savings, up to a monthly maximum of 100 Reals (US$35), but all payments have to be made at the end of each month. Card holders are also required to continue saving at least 1 Real per month, though most manage between 1 and 3 Reals. Although most card holders spend all the monthly total available, everyone has been paying back on time. The shopkeepers and producers keep a record of the purchases and they are paid twice a month for the amounts owed to them. All the enterprises pay a proportion of the sales (1.5 per cent) to the bank to cover the cost of providing the credit.

Building loans

The PalmaCasa fund has been used for rebuilding and renovating at least 65 family homes. Loans are for a maximum of 300 Reals (around US$100) and have to be repaid over a six-month period. The interest rate is kept low, at 1.5 per cent per month.

Households wishing to take part in the building materials loan scheme are asked to prepare a list of materials required. These have to be bought from one of the companies taking part in the credit card scheme. Once the family has signed the loan contract with the bank, the list is given to the building materials supplier who then delivers the goods. The bank keeps 2 per cent of the cost of the materials as the charge for facilitating the sale. So far the bank has made 20 small loans for the rebuilding of houses.

Urban agriculture

Urban Agriculture credit is provided to pay for training and inputs aimed at strengthening security for women, who learn to cultivate vegetables and medicinal plants, and to keep chickens. Everything that is produced is consumed by the families or sold at the local market. In 2001 alone, this benefited 1,125 families in Palmeira.

Other activities

The bank is also involved in many other activities in the community of Palmeira, including:

• The Club of Independent Exchanges with Social Currency is a service directed towards local producers and consumers where by-products can be exchanged through a social currency created by the bank - the Palmares. This currency is unique because the value of the Palmares is determined by the number of hours worked and the inputs used to manufacture the goods and is therefore a true reflection of the cost.

• The Feminine Incubator project helps socially excluded women with little or no family or housing to regain independence and play a part in society again. The bank provides them with small loans to pay for food and somewhere to live.

• The bank has set up a shop in its office where producers who have loaned money from the bank, can display and sell their products. The Bank Palms Fair opens every Saturday, with some 20 local producers attending as well as local artists.

• The School of United Socio-economics (known as PalmTech) has been set up, which offers managerial and professional training and qualifications to promote unity and represent the bank's philosophy of poverty reduction through local development.

The Impact and Future of the Scheme

All the loans made by the bank are granted with an interest rate of up to 2 per cent, depending on the type of credit. This covers the overhead costs of the bank, such as electricity and stationery, while the human resources are paid for by the local government. The operational costs are kept low by the Association and its volunteers, who take on many of the administrative duties. The scheme is self- sufficient and sustainable because it operates on a revolving fund principle, where money paid back for loans is used to provide other loans.

The bank plans to make improvements to the service, including using computers to manage all financial information. They also plan to ensure that all parties involved understand just how the bank works, by improving accountability between members and management. Bank facilities are due to be expanded as the bank is currently run from a small office with room for only two desks. Expansion of the bank itself is planned with the possibility of opening new branches in other neighbourhoods, to reach more customers in Palmeira.

This innovative approach to uniting inhabitants through a common cause has enabled many people in Palmeira to acquire credit and loans that would have otherwise been unimaginable. It has restored the feeling of citizenship to the poor families of the area and the number of members of the Association has grown from 500 to 900 in only three months. The scheme has provided a basis for exchanging ideas between the community and the local authorities. The Association has, for example, been negotiating with the local authorities to take on the administrative costs of operating the bank. This would allow the bank to offer even lower interest rates on their loans.

© CIA World Factbook

For further information, please contact:

For information on micro-finance:

Eldis Microfinance Gateway nt1.ids.ac.uk/eldis/fin/micro.htm The Eldis Microfinance Gateway lists many organisations involved with micro-credit. It also has many country profiles, where papers from different countries can be viewed, and organisations working in those countries can be found.

MicroFinance Network www.bellanet.org/partners/mfn The MicroFinance Network is a global association of leading microfinance practitioners. The members of the MicroFinance Network are committed to improving the lives of people on a low income through the provision of credit, savings and other financial services.

The Microfinance Gateway http://www.microfinancegateway.org/ The Microfinance Gateway is a public forum for the microfinance industry at large that offers a wealth of services for microfinance professionals, including resource centres on specific topics in microfinance, a searchable library of electronic documents, a consultant database, a jobs listing service, and specialised discussion groups.

Grameen Bank Grameen Bank Bhaban Mirpur, Section-2 Dhaka-1216 Bangladesh Tel: 8802-9005257-68 E-mail: grameen.bank@grameen.net Website: http://www.grameen-info.org/ The Grameen Bank is one of the most successful organisations to provide micro-credit for the poor. The website contains an library on all aspects of micro-credit.

This document is an output from a project funded by the UK Department for International Development (DFID) and the European Commission (EC) for the benefit of developing countries. The views expressed are not necessarily those of DFID or the EC.

Acknowledgements

ITDG would like to thank Debora Cavalcanti for her input into this paper.

TVE/ Practical Action gratefully acknowledge support for the HANDS ON programmes from the UK's Department for International Development (DFID), the European Commission (EC), the UN Foundation and UNDP/The Equator Initiative in collaboration with the Government of Canada, IDRC, IUCN, BrasilConnects and the Nature Conservancy.