FinTech For Public Benefits — The Mumbuca Coin
Milena owns a small coffee and ice cream shop in the heart of Maricá, a small city near Brazil’s most famous city, Rio de Janeiro. Surrounded by the ocean and a lake, Maricá is warm almost year-round and in the summer months temperatures consistently hover around 32C/90F.
Milena’s shop provides a welcoming refuge from the surrounding heat with its cold ice cream. Milena’s shop is especially unique because locals can purchase a cup of coffee or an ice cream cone with a local coin, the Mumbuca coin.
“After, a visit from the local government staff, I opened an account with the city.” Milenna adds that she also uses Mumbuca coins “to buy products from local shops and to maintain inventory in my store.”
Since its implementation in 2015, the Mumbuca coin has grown from basic cash transfers to provide food stamps, universal basic income, and critical economic support during the COVID19 pandemic.
Hosana is another local businesswoman who accepts Mumbuca coins. At first, she was skeptical of the project. “I didn’t put Mumbuca in my store right away because I assumed people would only use it in pharmacies and markets. But, over time, I decided to accept Mumbuca coins in my store”.
Hosana faced some backlash for her decision. “At first, my friends criticized me, stating that I would attract low-income customers to my store. It didn’t bother me; actually, the decision ended up being very good for me. I had more clients in my business, which was well worth it.”
Hosana eventually began using Mumbuca coins not only as a business owner but also as a consumer. Moreover, she was able to take advantage of support through the program during the COVID19 pandemic.
“The Mumbuca coin was very beneficial for me because, during such a difficult period, I was able to support my family since the store was closed”. Hosanna adds that “today, if I need to deliver something to a customer, I buy gasoline with Mumbuca coins in the same way that I buy food at the market.”
The Mumbuca coin now serves about 40,000 residents. Each month, the project provides every local resident with 170 Mumbuca coins, equal to 170 Brazilian reais or about US $35. Hundreds of institutions across the city accept the payment method and according to local government surveys, more businesses accept the local coin than credit card payments.
The Mumbuca coin operates on two platforms, a physical debit card and a mobile phone app (see photo above) called e-Dinheiro. The physical debit card is only for residents in the Renda Básica Cidadã program, an initiative that provides support to Maricá residents with low income and/or in situations of socio-economic vulnerability. The debit card allows the program to reach residents that don’t own cell phones.
Hosana and Milena are two present day beneficiaries of an initiative that started almost a decade ago as a pilot in 2013. The pilot was implemented more broadly two years later during Mayor Washington Quaquá’s tenure. The currency went through a larger expansion in 2019, under Mayor Fabiano Horta, the current mayor of the city. The project was initially developed as a vehicle for targeted public benefits payments. Over time, the project expanded its reach as a platform for distributing localized universal basic income, or UBI.
Potential to cultivate local economic development is one of the major benefits of a fintech like the Mumbuca Coin. Public benefits traditionally are not tied to any single local or area of economic activity. Local public benefits can be easily spent outside of the local jurisdictions where they were administered and disbursed. This significantly reduces the community economic benefits of money transfer programs administered by local governments. Empirical analysis shows that people spend local and federal governments emergencies funds in wealthier places and on products from large, often international, companies.
The Mumbuca coin tackles these challenges by ensuring that public benefits provided by the municipality are spent within the local economy where Mumbuca coins are accepted. This is especially important for Maricá given its close proximity to Rio de Janeiro and the large number of residents that commute for work and leisure to urban areas of Rio de Janeiro. These residents are now incentivized to spend their public benefits within the local community through the Mumbuca coin.
Many municipalities want to draw upon the success of the Mumbuca coin by developing their own fintech driven local coins to disburse public benefits. Expanding Mumbuca beyond Maricá is a fascinating idea, albeit with many context specific challenges. For example, Maricá is natural resource rich municipality with resource revenues that fuel its public finances. Municipalities with less robust public finances may struggle to raise the necessary revenues for public benefits.
Bruno Henrique Sanches, a doctoral student at FGV Sao Paulo, has been closely studying the feasibility and scalability projects like the Mumbuca coin. According to Bruno, Mumbuca coin was based on a model first created by Banco Palmas. Founded in 1998, Banco Palmas was the first community bank in Brazil, and its social currency inspired many similar projects across the country. After Brazil approved legislation for electronic payments in 2013, Banco Palmas launched a digital platform called e-Dinheiro, a digital wallet platform suited for operating community currencies.
In the first half of 2018, the city of Maricá decided to incorporate e-Dinheiro into Mumbuca through municipal regulation. With the e-Dinheiro platform, users started using the Mumbuca coin for diverse financial transactions, from payments in local establishments to direct transfers between people. Currently, the Instituto E-dinheiro Brasil, a civil society organization linked with the community banks network, owner of the e-Dinheiro platform, manages the Mumbuca coin. As of the end of 2020, 65 community banks adopted the e-Dinheiro platform with more than 135,000 users and 13,000 companies registered.
Bruno added that other coins are being developed based on the success of Mumbuca. Three other municipal social coins are being implemented in Itaborai, Cabo Frio, and Niterói, municipalities near Maricá. These coins are all inspired by Mumbuca and operated by e-Dinheiro. Local coins also present new opportunities for municipal governments to experiment with innovative technology. Mumbuca operates on a centralized infrastructure but it could also be adapted for decentralized technology such as blockchain. A blockchain based infrastructure could improve transparency and efficiency of payment systems. Researchers at FGV are exploring how municipalities in Brazil could develop public benefits with blockchain technology to further improve service delivery.
If you would like to learn more about Bruno’s research, you can reach him directly at this link.
In an interview with ITS, Magnun Assumpção Amado, a senior official in the Maricá government, expressed his positive experience in helping to implement the Mumbuca coin project. He added that the digital economy could provide additional opportunities for local governments.
“The applications for digital, social currencies are numerous and the state plays a critical role in facilitating this process.”
Magnun also expressed the importance first mapping community needs and tailoring approaches. He emphasized both steps as critical for municipalities that are seeking to replicate the Mumbuca coin’s success.
As mentioned by both Bruno and Magnun, there is significant potential to scale Mumbuca, albeit with careful consideration of local contexts. Many small-scale business owners like Hosana and Milena could benefit from the local support that the Mumbuca coin can cultivate. The Mumbuca coin could also be deployed with blockchain/cryptocurrency technology to amplify its socio-economic impact, transparency, and efficiency. As evidenced by Mumbuca, a local coin can serve as a tool for targeting public benefits in an efficient, easy to use format, and ensure that public funds circulate in the local economy.
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*Mohammad is an International Fellow focusing on governance and financial inclusion in the blockchain, digital currency, and fintech sector. Mohammad completed his JD from Harvard Law School, his MPP from the Oxford University and his degree from the University of Maryland. Mohammad is passionate about technology-based solutions to economic and legal challenges in emerging markets. He speaks seven languages and has traveled to nearly fifty countries.
** BA Candidate at PUC Rio de Janeiro