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Banking on the Community

Copyright 2001, Mona SerageldinMoney is imaginary.

More precisely, money is the tangible manifestation of an agreement between you and other people that the oddly-colored piece of paper in your hands has value. This lets currency rates slip and slide relative to each other, as people try to agree on exactly what the value should be, but it also has another implication. If you can find enough people to agree on its value, you can make up your own money.

In 1998, the residents of the Palmeira District, a slum in Fortaleza, Brazil, did just that. Setting up an organization called Association of Neighbours of the District of Palmeira, the residents created a new bank -- the Bancos des Palmas, or Palm Bank -- and a new currency, the Palmas. The bank and currency not only succeeded, they have thrived.

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.

The efforts to strengthen local businesses has been very successful. According to an independent 2003 analysis (PDF) of the project by the Dutch microcredit NGO Strohalm, while nearly a quarter of the district's residents interviewed reported an initial reluctance to participate, 100% -- every person spoken with -- "stated that they have altered their consumption patterns towards local products" as a result of the spread of Palmas. Spending on local commerce jumped from 16% of purchases to 56%.

But the Palm Bank is more than currency: it's a source of microcredit loans. In that, again, it has been wildly successful at improving the lives of Palmeira residents. There are five types of loans: business microfinancing; a special microcredit program for "at risk" women; the PalmaCard (credit card); PalmaCasa (for renovating homes); and loans for urban agriculture (such as backyard gardens). The programs have given support to hundreds of Palmeira families. Most widely used is the PalmaCard:

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.

Dropping out and creating a community currency is surprisingly common, but doesn't always work; the Palm Bank experience is particularly special. Nonetheless, the Palm Bank is a vivid demonstration that slums and poverty are not due to some defect in the industriousness or desire for a better life in the residents. Sometimes, changing the system is the necessary course of action.

Comments (2)


I'm stunned at the genius of this.

Banking is the core of our present global economy - I realize that almost sounds like a tautology, but it's a significant recognition. Banks function by aggregating human capital, and making a profit by lending it back out to the community at interest.

A true Open Source Economy will be driven by an open source bank - one that runs at cost, owned by the community it serves, open to all. Palmeiras seems to demonstrate this, and I think it's very exciting. If the bank further invested in acquiring the land (from conventional banks) in trust for the community, it would empower the community in purpetuity, and make this relationship self-sustaining. The key element being community owned and managed land, rather than the cyclical reselling and ever-spiralling costs of individual land ownership as we know it today.

I'm sure someone has the word "communist" rattling in their head right now, but i'm wary of dogmas and ideologies -- this to me is the power of the phrase, "open source." It suggests a mentality based not on rules, but rather on standards, and it works because you share *what makes sense.* It is precisely this fungible nature that makes the thinking so powerful -- because it entails a way of thinking, rather than a system of rules for behaving. It's why I'd much rather call this behavior an Open Source Economy, which at this point has a hazy but hopeful sound to it, rather than stigmatizing it with the label of one failed ideology or another. The definition leaves what Daniel Dennett would call "Elbow Room" -- some space for continually refining what me mean (by Open Source Economy).

I love the constant look at new technologies that Worldchanging provides, but I'm convinced that to change poverty, we need no new technologies (though they can make things so much better), but new ways for poor communities to think and function. We need changes in culture before changes in technology will ever really help us. Mind you, I'm as far from a Luddite as you can get, but I believe it starts with culture, then blossoms with tools, not the other way round. I'm a chicken-man, not an egg-man.

Clearly, there is enough human capital on this planet to feed, clothe and house everyone, but it's mis-distributed (if our collective goal is indeed to feed, clothe and house everyone). Allowing the have-nots to operate as a group economically, and retaining excess capital (call it wealth if you're an Adam Smith fan) *within* the community has to be the best first step in ending poverty. Given how little excess capital there is in the first place, letting it bleed out seems like a non-starter.

Mind you, I'm not necessarily against banks or land ownership, but there seems to be an economic breakpoint, below which the reaction can't sustain itself, and you get cyclical poverty. The counter arguement is obviously that you can inject enough capital and/or technology to jump start this reaction. We've been trying that more or less for a hundred years, and it doesn't look like it's working to me. Having global banks use micro-lending as a way of making a profit (and thus draining excess capital from the community) doesn't seem like a good idea.

If you need reasons, ask yourself why the nation that has the most per capita gives the least % of its GDP to help the rest of world. It seems to me that we all want to keep what we already have, which is hardly surprising on an individual level. Unfortunately, on an aggretate level, it produces haves and have-nots. If you're poor enough, you probably can't even keep what little you have. Until that changes (and Palmeira seems to me to be a promise of just that!), I don't see an easy or early end to poverty in human history.

What makes Palmeira so amazing is that, through collective agreement, they've done something that any community could do in one form or another, legally, benefitting apparently everyone. Once their community reaches that economic breakpoint, it paves the way for more conventional banks and businesses to bring additional capital to the table, but on the community's terms. This is definitely one to watch!


I don't want to start a flood of listing community currencies here (Toronto Dollars, Ithaca Hours and so on), but felt that the marvellous Salt Spring Dollars merited a mention, mostly because, like the one above, they appear to have been an unqualified success.


This page contains a single entry from the blog posted on February 23, 2005 6:26 PM.

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