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Banco Palmas

Author: Banco Palmas
Published Date: 13 March 2013


Financial inclusion is one of the areas that has attempted to address the day-to-day financial issue of the poor people. Nearly 59% of the world’s adult population from developing countries have individual or joint bank account.[1] Social entrepreneurs are redesigning banking model with pro-poor focus to remove barriers such as high transaction costs and inflexible loan products that are not tailored to their situation, circumstances and behavioural patterns. In the case of Banco Palmas, social entrepreneur Joaquim Melo pioneered community-driven approaches to banking in 1998 serving favelas, or shantytowns, located outside of Fortaleza, Brazil with a population of about 30,000.[2]


Banco Palmas has three main characteristics: (i) management responsibilities of the bank are shouldered by the community; (ii) collective focus on local development that promotes credit, production, commercialisation and training; and (iii) issuance of local currency (Palmas currency), which complements Brazil’s official currency and is accepted and recognised by local businesses, suppliers and consumers, thereby creating an alternative market within the community.

The Bank has also developed an economic system that has an alternative micro credit line (for producers and consumers), incentive tools for local consumption (credit card and social currency) and new ways of commercialisation (fairs, solidarity shops/stores) promoting local job creation and income generation.

Banco Palmas is owned and operated by the community, and is truly a bank for the people by the people. It keeps the interest rates low and invests all profits back into the community. When offering credit, it utilises local relationships to gauge credit worthiness and determine flexible borrowing terms. Borrowers are vouched by their neighbours or institutions like churches and clubs for their ability to repay their loans.

The Palmas currency is pegged to the Brazilian real (1 Palma is worth BRL 1), so it allows productive entrepreneurial activities within the community. The Palmas currency is accepted by 240 businesses, which offer discounts from 2% to 15% to encourage people from poor neighbourhoods to buy with the social currency. Local public administrations are also supportive of the currency, and pay between 5% and 20% of salaries in the Palmas currency to those employees who live in the neighbourhood.

Immediate and Broader Implications

The bank has flourished tremendously. An astounding R$1.2 million gets circulated in the community each month. This has enabled and empowered local businesses to produce, residents have the ability to buy, and the entire community has benefited economically and socially. Aside from the local currency, Palmas Bank has started training programmes that trains vulnerable young people and women to find jobs. It also works to raise awareness of the benefits of consuming local goods and services, and the wider benefits of the solidarity economy. Additionally, it has also helped in building a network of local producers and traders and promoted the development of local co-operatives.

In 2003, Palmas Institute was created to promote the social innovativeness of the bank and the institute now heads a network of 47 community banks throughout Brazil that are built around the model of Bank Palmas.[3] The community banks in the Palmas Institute’s Network are located in areas that were historically excluded from the traditional banking and financial network (example of such areas are areas dominated by indigenous people, isolated districts in the semi-arid northeast and the urban periphery occupied by the poor people). Through the partnership with the Bank of Brazil, the Palmas Institute organises and manages a credit fund, which typically transfers a start-up amount of around R$ 30,000 into a new established community bank.


Banco Palmas has been a very successful example of an innovative approach that fosters favourable outcomes for poor and marginalised population. It is able to cater to community needs by creating an alternative economy that suits their condition and behaviour pattern. The fact that this model was copied throughout Brazil shows that there is a need to focus closely on social learning processes within the pro-poor innovation system. Devising new ways of being inclusive can benefit communities that function differently from middle and high-income populations.

[1] Demirguc-Kunt, A., 2012.Policy Research Working Paper# 6025.Measuring Financial Inclusion: Global Findex Database. World Bank. Available at: [Accessed: August 15, 2012]

[2] Jayo, M., Pozzebon, M. &Diniz, E. H., 2009. Microcredit and Innovative Local Development in Fortaleza, Brazil: the Case of Banco Palmas. Canadian Journal of Regional Science, 32(1), pp. 15-128.

[3] Citizen Base Initiative, 2012 (Creating Community Cohesion through Creative Financing [online]. Available at: [Accessed: August 15, 2012]