A people’s fintech in Brazil
Milford Bateman and Fernando Amorim Teixeira
13 December 2022
Fintech is being sold throughout the world as the new panacea to poverty, promising financing to anyone with a mobile phone. However, driven by investors and venture capitalists seeking short-term returns, it often leaves people and communities with unmanageable debt burdens and facing increasing poverty and vulnerability. The city of Maricá, Brazil, is pioneering a community-based model of Fintech. Could it point to a different path for addressing vulnerability and building long-term sustainable development?
For many of the world’s precarious workers, the COVID-19 pandemic led to immense financial stress and anxiety, particularly in cash-strapped low-income countries that could not afford to provide furloughs or stimulus payments. In the coastal town of Maricá in Brazil, however, locals had a different experience. During the pandemic, the municipality doubled the guaranteed monthly income to 300 mumbucas – a digital currency unique to the town – equal to roughly a third of Brazil’s minimum wage at the time.
Luciana de Souza Nunes, who works as a freelance massage therapist in Maricá, benefited greatly from this programme. ‘Even though I can only buy within the city, it helps a lot,’ she told El Pais.1 ‘I use the mumbuca mainly at the supermarket and at the pharmacy, to buy the basics. With the money from work I pay the extra bills.’ The injection of money into the local economy also had wider benefits, as it sustained local businesses and prevented job cuts.
The municipality of Maricá is located in the greater Rio de Janeiro metropolitan area and is home to around 160,000 people. It has the good fortune of being situated inland from profitable offshore oil reserves. Since 2010, the left-wing municipality has used the revenues from both oil and gas exploration to fund one of the largest basic income experiments in the world.2
Under Maricá’s basic income programme, the Renda Básica da Cidadania (Citizen’s Basic Income, RBC), around a quarter of the city’s residents receives a monthly stipend of mumbucas equivalent to 170 Brazilian reals (US$33). Mumbucas are accepted by local businesses and retailers and can be used to pay for a range of services, but it is worthless outside the town’s borders. This model ensures that the stipends paid out by the municipality are spent locally and that the money stays in the town and helps promote local economic and social development.
Upon its introduction, the so-called Maricá Model was met with hesitancy from the local population. ‘Only about 40 people signed up when it was created. As the programme grew, people began to believe,’ recounts José Carlos de Azevedo, who commands the municipality’s Solidarity Economy portfolio in conversation with El Pais.3 But over the years the model has proven its worth – even more so since 2018 due to the failure of the central government under President Jair Bolsonaro to meaningfully invest in poverty reduction and social development, as well as its weak response to the COVID-19 health crisis.
The Maricá Model is an important example of how grassroots and locally developed ‘fintech’ (financial technology) can be used for social development programmes offering direct support to those in need.
Maricá’s Fintech Model
The Maricá Model began as an economic, social and political development intervention heavily influenced by the Solidarity Economy movement in Brazil.4 The Maricá Model has not just survived the COVID-19 crisis, but appears to have emerged even stronger out of it.
Over the past few years there has been a wild-growth of fintech initiatives and start-ups around the globe proclaiming that they possess the power to address poverty and to promote sustainable and equitable local economic and social development. Almost none live up to their claims. The basic fintech model must, first, be described as investor-driven5 because it has evolved to overwhelmingly serve the interests of private investors and venture capitalists. Such fintech financial platforms have boomed in low-income countries, promising short-term gains for the poor and marginalized, including reduced costs of, and greater access to, many important financial services, such as credit, remittances, and payments. But in the medium-to-longer-term, they have failed to live up to their claims and have instead led to individual indebtedness, unviable, speculative, and short-lived enterprises and increased poverty, vulnerability and suffering.
The Maricá Model is different in many respects and can best be described as a ‘people-centred’ fintech model. It shows how it is possible for basic fintech applications to be directly used to promote the common good rather than to generate profit. Put simply, the explicit aim of the Maricá Model is not to lavishly reward private investors, but to substantively address local poverty and rising inequality, promote sustainable local enterprise development, extend social justice through the retention and reinvestment of community-based wealth, and to enhance democratic participation in economic life.
The Maricá Municipality is one of four regional and local governments in Brazil – along with Niterói in the State of Rio de Janeiro, the municipality of Ilhabela in the State of São Paulo, and the State of Espírito Santo itself – that have opted to creatively use the royalties that flow from the oil and gas industry to endow a sovereign wealth fund.6 In 2019, up to 70% of Maricá’s municipal budget was financed by oil revenues.
While the exploitation of these new oil and gas reserves is certainly problematic in light of the climate emergency, it remains the case that marginalised communities like Maricá often have no other means to develop their local economies than by carefully using such natural resources.7 This is the case for many of the poorest communities in the underdeveloped regions of Brazil.
Fortunately, among some of these communities, we are witnessing a genuine desire to manage fossil fuel reserves in such a way as to provide a permanent economic and social benefit to the local populations.
The Rise of the Mumbuca
The Maricá Municipality’s RBC basic income programme was established in 2019. As the COVID-19 crisis emerged in 2020, the RBC was supplemented by the Worker Support Programme (Programa de Amparo ao Trabalhador, PAT) which targeted informal sector owners and employees. The RBC and PAT are now the two main cash transfer programmes in Maricá. Thanks to these two programmes, all the indications are that poverty has been successfully addressed at a time when the general trend was the opposite as a result of the COVID-19 crisis.
Both RBC and PAT are paid out in mumbuca, which, as a result is now widely used across the town. Maricá’s residents can pay with mumbuca in a range of businesses, from major supermarket chains to local companies and most smaller formal and informal enterprises.
A 2% fee is added to any business transaction in mumbuca, which the Mumbuca Bank (see below) uses to underpin its social activities and affordable loan programmes. There appears to be little resistance to this fee as it allows a business to tap into the growing local demand that is underpinned by mumbuca. Many businesses using mumbuca have opted to use it in local transactions. The value of the mumbuca is equal to that of the Brazilian real, but only business owners are allowed to exchange the currency by paying a 1% transaction fee and by adhering to a 48-hour waiting period. Conversions undertaken between the first and fifth day of the month incur no fee at all.8
A growing number of services provided by the Maricá Municipality to the local population can now be paid in mumbucas, while a small part of the salaries of its employees (such as the Christmas bonus) are also paid out in the digital currency.
Finally, paying out both the RBC and PAT involves no charge levied on the recipient. This compares favourably to similar cash transfer schemes that use private fintech institutions to facilitate the transaction – such as the M-Pesa in Kenya9 – which often cream off a not-insignificant percentage of the value of the cash transfer.
The growing acceptance and use of the mumbuca is an important development in terms of the sustainability of the Maricá Model. Economic history shows that many previous local currency schemes have failed as a result of the unwillingness of the local community to actually use a local currency in sufficient volumes.
Mumbuca Bank and E-dinheiro
The mumbuca is regulated through the Mumbuca Bank, Maricá’s municipal community bank founded in 2013. It is based on a model of community development banks famously pioneered in the Palmeira neighbourhood of Fortaleza, a city in northern Brazil, which sought to promote a bottom-up Solidarity Economy. Banco Palmas (Palmas Bank) in Fortaleza was the first community development bank to introduce a local social currency to stimulate the economic and social development of marginalized communities. These local currencies are only accepted as legal tender within their own communities, and have evolved from actual paper bills like the palma in the year 2000 to digital currencies like the mumbuca in Maricá today.
For the circulation of the mumbuca the Mumbuca Bank relies on a digital payments platform called E-dinheiro.10 Launched in Palmeira in 2015, this platform is a community technological innovation that links the Palmas Bank with more than 40 community banks around the country that also use local digital currencies. Crucially, the links with other local digital currency programmes reinforces the sense of solidarity between the community banks.
But in Maricá, the municipality has taken the experiment a step further. Not only has it developed its own local digital currency, it also pays the RBC in mumbacas, injecting millions of the local currency into the local economy every month. In the short term, this cash injection underpins the local economy and addresses local poverty. In the long run, it aims to stimulate sustainable new enterprises serving unmet local needs.
The use of mumbuca in the business community continues to grow. Of more than 8,000 businesses registered at the Mumbuca Bank, over 70% received a payment in mumbuca and 67% used mumbuca to pay for their own raw materials and other intermediate inputs, utility bills and so on.
Finally, the Mumbuca Bank has in the last year expanded its offer of low-cost microcredit to local businesses, especially targeting those with the most potential to serve the local community, such as cooperative businesses. It also offers a credit line that is designed for home renovations and repairs.11
Through its development company Codemar, the Maricá municipality also seeks to invest in more medium and long-term economic development, including funding and developing new enterprises linked to the oil and gas sector. To that end, Codemar has sought out a range of local and international partners to assist it in developing a technology-intensive local SME sector with the capacity to expand sustainably.
Progress in regards to this effort to promote sustainable local economic development was inevitably delayed by the COVID-19 pandemic, but the Maricá municipality’s vision remains to fund a wave of sustainable SMEs through the Mumbuca Bank. The aim is to advance the level of local innovation and technology development, as well as create more well-paying, high-skill and environmentally-friendly employment opportunities for locals.
The mumbuca digital currency and E-dinheiro payment platform fit into a wider economic and social development programme by the Maricá municipality, which also includes ‘savings accounts for high school students, free public transportation, massive infrastructure investments, and a sovereign wealth fund to lower costs of capital and guarantee social programmes in perpetuity.’12 Together they powerfully demonstrate the ability of a local government to use its financial resources to promote equity and social development for its citizens.
Threats and Challenges
There is, however, a real threat facing community-based initiatives such as the Mumbuca Bank. Brazil’s oligopolistic banking structure – almost 80% of credit goes through only five large banks – has allowed large banks to invest huge amounts of money in technology. In 2021 alone, around R$30 billion (US$5.6 billion), was invested in fintech incubators and spent on the acquisition of smaller fintechs.
At the same time, an increasing number of Brazilians are taking out individual loans using digital platforms: 2021 saw a 26% increase in the number of loans compared to 2020.13 In 2021, Brazil’s fintechs issued nearly R$13 billion (US$2.4 billion) in loans, which was nearly double the volume of loans registered in the previous year, and a quadrupling of loan volume compared to 2019.14
In addition, Brazil has witnessed quite spectacular growth by a new investor-driven fintech sector.15 By far the most important example here is Nubank. Founded in 2013, it is now Brazil’s largest investor-driven fintech platform with around 45 million clients. Its lower costs, thanks to the lack of physical branches, and backing by deep-pocketed – mainly foreign – investors willing to accept significant initial losses in the hope of eventually creating a hugely profitable monopoly (similar to Safaricom in Kenya, the owners of M-Pesa16), has enabled it to lure a large number of clients away from the largest legacy banks.17
Similar developments elsewhere18 have shown conclusively that a dominant market share will indeed enable a fintech enterprise to extract stratospheric monopoly profits from the poorest communities, which is clearly the strategic, albeit unstated, goal of many of its shareholders and senior managers.
For progressive forces in Brazil, one of the most serious risks associated with the emergence of fintech banks is that they stand to wipe out Brazil’s democratically-managed financial cooperatives and local community-owned financial experiments such as the Mumbuca Bank. The more control investor-driven fintechs gain over local financial systems, the more likely the chance that grassroots democratic financial institutions will be forced out of business.19
Crucially, this risk exists even if local fintech applications are adopted by community-based institutions in an attempt to streamline business and lower costs. This is because their more solidaristic operating methodology, democratic approach and concern for social justice inevitably leaves such financial institutions exposed to the competition coming from the far more aggressive and often unethical business tactics adopted by the new generation of investor-owned fintechs.
While institutions like the Mumbuca Bank are undergoing major changes, they still lag behind many investor-driven fintechs. The risk here is that the millions of reals that Maricá’s RBC basic income programme injects yearly into the local economy will be all too easily drained away by investor-driven digital platforms that offer attractive initial benefits to secure new clients, but in the fullness of time end up over-charging them for the digital services they provide. In the meantime, of course, the competition will have been thinned out and clients reverting to their former smaller financial institution or community-based fintech may no longer be possible if it has been forced out of business.
Another potentially problematic issue concerns the contract signed in 2019 between Codemar, the Maricá government’s development company, and Leonardo, the major Italian aerospace, defense and security company. The aim of the contract is for Leonardo to help develop various technology-intensive small- and medium enterprise (SME) projects in the locality that are linked to the oil and gas industry. The intention is to create many sustainable high skills jobs and raise productivity. However, with Leonardo known worldwide as a major arms dealer and border militarisation contractor20, this connection might prove politically awkward to maintain into the longer-term. A less controversial enterprise development partner might thus be needed in due course.
Equality, Sustainability, and Development
The ‘people-centred’ fintech model being implemented in Maricá, now being adapted by neighbouring cities in Brazil, stands as one of the most exciting ways that fintech can made to directly benefit the local community as opposed to enriching a small number of wealthy – and mainly foreign – investors. In Maricá, this model has helped to cut the costs of local government, has directly aided the poor, is boosting local demand and provides financial support to promote the sustainability of local businesses.
The main threat the Maricá Model faces, however, is from big fintech platforms, such as Nubank, that can attract clients away with promises of cheaper services before going on to exploit its clients thanks to the monopoly it aims to create in the longer run.
Ultimately, the fate of the Maricá Model will be determined by its ability to provide quality financial services to the community while at the same time advancing greater equality, building a sustainable local economy and promoting social development. Links to similar experiments elsewhere in Brazil and across the region will also help to create the necessary economies of scale that can offset the advantages sought by the monopoly-seeking investor-driven fintech platforms. In this way, local fintech initiatives like the Maricá Model can ensure that local communities retain control of their own financial systems in the long run.