Microcredit involves offering credit in small amounts and at low interest rates to economically disadvantaged populations and those who cannot offer guarantees. The offer of microcredit for solidarity purposes is not aimed at increasing an organization's profits but rather toward local economic development and as an initiative to eradicate poverty. The first community development bank was founded in Brazil in 1998. Such banks offer financial, solidary-based, networked services of an associative nature and are aimed at reorganizing local economies through job and income generation and establishment of a solidarity economy. This chapter presents the following problem question: How has the mobile payment or electronic payment technology impacted the performance of Brazilian solidary digital banks? It also presents guidelines for replicating this model in developing countries.
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The idea of lending money to economically disadvantaged individuals is not recent. According to the stories compiled by David Roodman in his book “Due Diligence–An impertinent inquiry into microfinance,” lending money with little or no interest rates to the poor was a practice prevalent even in the 18th Century. Around the year 1720, Jonathan Swift, the author of “Gulliver's Travels” and an already established personality by then began helping Dubliners by lending them five or ten pounds at a time and with no interest rates levied. In this process, Swift required borrowers to appoint two guarantors who would be held responsible for the debt if the borrower failed to meet the agreed payment schedule (Roodman, 2012).
Since its inception in the late 1970s, the Grameen Bank Project in Bangladesh, through its business of providing credit to economically disadvantaged persons, has spawned a global movement that has popularized microcredit (Roodman, 2012). This concept essentially assures credits in small amounts and at low but sustainable interest rates to financially disadvantaged populations and those who cannot offer guarantees. That experience showed that the public of this type of credit maintains a high level of commitment to repay their debts, as it is the only fair fund they can access. The provision of microcredit for solidarity purposes is not aimed at the profit of an organization or a person but rather emphasizes on local economic development and eradication of poverty (Meyer, 2020).
In Brazil, the first community development bank called Banco Palmas was established in 1998. According to Banco Palmas, a community development bank is a financial, solidary, networked service of an associative and community nature, aimed at reorganizing local economies through job and income generation and the establishment of a solidarity economy. The community development banks (CDBs) work in solidarity microfinance, providing services such as the provision of productive microcredit and consumer credit to the community.
The complementary digital currencies offered by community development banks in Brazil enabled quick money transfers, facilitating public benefits for the neediest individuals during the COVID-19 pandemic. Mumbuca, the digital social currency of the Maricá Bank, E-Dinheiro, has specifically helped the Brazilian Federal Government offer basic emergency income to the residents of Maricá, Rio de Janeiro (Gonzalez, Cernev, Araujo, & Diniz, 2020). This policy implemented by the municipality's community development bank has benefited 25% of the Maricán population. This basic income, paid to the low-income population through the social currency Mumbuca, could be used in commercial establishments registered by the bank (Silva, Silva, Freitas, & Waltenberg, 2020).
Despite the significant positive impact of the digital social currency on BCDs, some challenges, including hacker attacks, arising from technology persist. Joaquim Melo, director of the Brazilian Network of Community Banks in Brazil, reflects that until recently, the anti-fraud system of the network of solidarity digital banks had already blocked over 4,00,000 attempted invasions.
Although many aspects are involved in the development, implementation, and management of an information security program, it is critical to have a broad understanding of the implications and requirements of an e-payment program with strong data security. Often the terms “threat” and “vulnerability” are used interchangeably. How has the mobile payment electronic payment technology impacted the performance of Brazilian solidary digital banks?
The general objective is to investigate the impacts of payment technology on solidary digital banks in Brazil, with the expectation of suggesting ways to implement this model in other developing countries. The specific objectives of the proposal are as follows: I) To identify the impacts of social currency digitization on the communities served through it; II) to discuss the expansion of the technology and overcoming of the challenges faced by solidarity digital banks; and III) To describe the functioning of the electronic payment system E-Money (System, characteristics, operation, privacy policy, and security protocols).
Through an investigation of mobile payment through Community Development Banks in Brazil, this research clarifies the fundamental aspects of the development of electronic payment technology in Brazil and its impact on Brazilians.