Report on Community Development Banks

8/3/2019 Report on Community Development Banks

http://slidepdf.com/reader/full/report-on-community-development-banks 1/26

SUBMITTED BY: GROUP-AROLL NO: 1 TO 50

CLASS: BBA-III (M)SUBJECT: ISLAMIC BANKING

SUBMITTED TO: MADAM ANUM



II

Group(A) Members Roll #

Afaque Abdullah Shah 104 Aftab Ahmed 105

Ahtisham Ali Gul 109 Amrita

Anum Asif Ali Gad 118 Asma Parveen 120 Bilal Ali Dayo 123 Bushra Fatima 124

Danish Faraz Ahmed 128

Ghulam Abbas 132 Hafeezullah 1 Ibrar Ahmed 136

Iftikhar Ahmed 139 Javed Iqbal 140

Kamran Hussain 141Kanwal Saba 142

Komal Kumari 143 Manzoor Lashari 145

Muhammad Noman 148 Moomal Soomro 149

Muhammad Ali Rajpar 150



III

A Network under the Supervision of theCommunity



IV

ACKNOWLEDGEMENT

By the Grace of Almighty Allah, the most Merciful, and the most Beneficial, due to the bounteous blessing of Almighty Allah, we become able to contribute this report on the topic i.e. “Community Development Banks”.

We are thankful to our subject teacher ….

“Madam Anum”

Who gives us chance to express our views in the

shape of report. This report will definitely helps usin understanding the “The Banking approach in the development of community”



V

TABLE OF CONTENTS

Abstract……………………………………………………………………VIBanking activities………………………………………………………...1-2

Community development banks (CDB’s)/ community developmentfinancial institutions (CDFI’s) /eco banks………………………………...3

What is CDB’s or CDFI’s or Eco Banks? ………………………………………… 3 What are the main characteristics of the Community Development Banks? ……… 4 What is the objective of a Community Development Bank? .................................... 4 What is the management structure of the Community Development Bank? ……… 5 How do you finance Community Development Banks? …………………………... 5 Services of Community Development Banks……………………………………… 6Who are the main potential customers of Community Development Banks? …….. 7

Understanding the Relevance of Community Development Banks……..8 The community development banks assure financial and banking services todifferent communities ……………………………………………………………… 8 A Community Development Bank helps in the process of CommunityOrganization……………………………………………………………………....... 9The Community Development Bank gives visibility and credibility to theneighborhood/municipality and the Community Local Organization…………….. 10

The Community Development Bank opens the door for new financingopportunities. ……………………………………………………………………... 11 A Community Development Bank boosts the Territorial Capacities……………... 13 The Community Development Bank and the Legal Framework …………………………………………………………………………………….. 14

How to establish a community development bank in aneighborhood/municipality………………………………………………15

Famous community development banks………………………………...16

Community development banks v/s Islamic banking…………………..18Islamic Banking has some concept as CDB’s If yes, how? .................................... 18 Area Restricted factor takes away from Islam? ………………………………….. 19 Why only micro credits are provided by the CDB’s? Why not involving otherinstitution for assistance? ………………………………………………………… 19

Conclusion…………………………………………………………………20



VI

ABSTRACT

This report is highlighting the importance of Communitydevelopment banks and explaining the roles and functions of CDB’s for the development of the community

In this report, first we have explained the definition,characteristics, objectives, management structure, financing,services and potential customers of CDB’s then we haveexpounded the importance of CDB’s. In last portion of report wehave elaborate the establishment procedure of CDB’s , famousexamples of CDB’s and Compare the function of CDB’s with

Islamic Banking

We have concluded that the major difference between CDB’s and Islamic banking is that: “No concept of profit and loss sharing”& “Prohibition of Riba (Interest)” in CDB’s. The concept of arearestriction is not prohibited in Islam. In the distribution of Zakat,the first priority is given to the poor family members and the

neighborhood. So this concept is similar to the Area restriction of CDB’s i.e. the first priority is given to community in case of employment opportunity of bank or any other financial facilities.

CDB’s aren’t working as the commercial bank, who gives financialassistance to middle class and high class people at higher interest rates. They are working for in low-income communities and gives

financial assistance at lower interest rate for their development.

CDB’s lend the amount which is collected through funds and donation of the Government & the members of the community

The data which is accumulated in this report has been collected through secondary sources



1

BANKING ACTIVITIES

Banks' activities can be divided into

Retail BankingDealing directly with individuals and small businesses

Business BankingProviding services to mid-market business

Corporate BankingDirected at large business entities

Private Banking

Providing wealth management services to high net worthindividuals and families

Investment BankingRelating to activities on the financial markets



2

Most banks are private enterprises. However, some are owned bygovernment.

Types of Retail BankingThere are several types of notable retail banks. These include the offshore,community and savings banks, as well as the community developmentbanks, building societies, postal savings banks, ethical banks and Islamicbanks.

Note: Offshore banks operate in areas of reduced taxes, as compared to the

country in which the investor lives in. This is why most offshorebanks are private banks.

Community banks are monetary organizations operated on a localbasis, while

Community development banks cater to the populations or marketsthat have typically not been served properly.



3

COMMUNITY DEVELOPMENT BANKS (CDB’S)/ COMMUNITY DEVELOPMENT FINANCIAL

INSTITUTIONS (CDFI’S) /ECO BANKS

What is CDB’s or CDFI’s or Eco Banks??

The mission is to support and provide resources for low-incomecommunities which are traditionally financially underserved. Unlike

ordinary banks with one (financial) bottom-line, community developmentbanks also consider the social impact of the loans they make, and measuretheir success based on a double bottom-line (supporting people andcommunities, and operating profitably) or a triple bottom-line (which alsoincludes environmental impact)



4

What are the main characteristics of the Community DevelopmentBanks?

1. The community itself decides to createthe bank, becoming its manager andproprietor

2. It always acts with two credit lines: onein Real currency (Rs) and another one incirculating social currency

3. Its credit lines stimulate the creation of local production and consumptionnetworks, promoting the endogenous

development of the area

4. It supports enterprises, as a commercialization strategy (solidarity shops,fairs, central office for commercialization etc.

5. It acts in areas characterized by a high degree of exclusion and socialinequality

6. It is aimed at a public characterized by a high degree of socialvulnerability, in particular the beneficiaries of governmental programs

7. It aims to become financially sustainable in the short term, obtainingsubsidies justified by their social utility.

What is the objective of a Community Development Bank?

Promote the development of lowincome areas, through theencouragement and creation of local

production and consumptionnetworks, with the support of theeconomic initiatives of theSolidarity Economy and its diversescope. For instance: socio-productive enterprises, service provider, support for commercialization(markets, solidarity fairs) and consumer organizations.



5

What is the management structure of the Community DevelopmentBank?

CDB’s are managed from within thestructure of the communityorganizations (associations, councils,forums etc…) and other type of civilsociety initiatives that are recognizedwithin the community (unions, NGOs,Church). Thus, its functioninginvolves the establishment of a teamin charge of the executivecoordination at the heart of theassociative organization itself.

Accordingly, its management involves a shared dimension with strongcomponents of local social control, based on the mechanisms of directdemocracy.

How do you finance Community Development Banks?

Its financing is done through access to public resources as well as asolidarity fund for community investment. This fund is formed by multiplesources of funding, from private donations from people and/or legal entities,membership fees (person or Legal entity), commercial services provided thatface no competition and other types of services provided.



6

Services of Community Development Banks They make lots of loans to help people and organizations in low-

income communities buy homes

Start small businesses

Develop non-profits, and build andrehab affordable housing.

They may also make small loans toindividual’s abroad (micro-credit).They often make loans to people whohave trouble finding loans anywhere else-- people with bad credit

histories or no credit history at all, people without collateral or co-signers-- so they take on a somewhat greater risk than traditionalbanks. But the rate of default on their loans is actually prettycomparable to traditional banks



7

Who are the main potential customers of Community DevelopmentBanks?

CDB’s are aimed at a public characterized by a high degree of socialvulnerability. In particular, because of its condition as a citizen’s initiativefocused on the development of the area. Such experiences should alsoinvolve other types of publics in some specific market segments, forinstance: women, the youth, merchants, new entrepreneurs, etc.



8

UNDERSTANDING THE RELEVANCE OFCOMMUNITY DEVELOPMENT BANKS

The community development banks assure financial and bankingservices to different communities

CDB’s offer financial services to the community, some of these services areprovided by the bank itself and some through partnerships with publicbanks. At the moment without any legal framework for solidarity financesthe CDB functions in partnership with a public bank characterizing itself asa banking correspondent. This partnership allows the CDB’s to bringbanking services to the most remote communities. Services that otherwisewould only be available at theconventional banks. If it werenot for the CDB’s it is unlikelythat there would be anyfinancial services in thesecommunities.

A commercial bank is notinterested in establishing a

branch in hard to access areas,characterized by poverty, withspecific populations (retired,indigenous people,quilombola2 communities)organized in small groups.Commercial banks need to haveprofits and those brancheswould not generate the return expected from a financial institution. TheCDB reaches those areas, and places the community as the manager of thoseservices. Established within the headquarters of the community associations,unions, community halls, forums, councils and other social organizations,the CDB contributes to humanizing the process, making the access tofinancial services available to all, when it used to be a privilege of the few,and furthermore without bureaucracy.



9

In addition, the CDB’s not only deliver those services, but they accomplishthis in a different way, therefore contributing to strengthen personalrelationships, trust and sense of community amongst the residents. Forexample: when a resident pays the water bill at the local branch of acommercial bank or at any other authorized location they are simplycompleting a financial transaction (paying the bills). When the same actiontakes place in a CDB, it is generating various positive externalities: theresident engages in a conversation with the bank representative, and he/sheis updated on the events and news from the community, receives educationalmaterial (neighborhood newsletter, etc.), he/she is invited to participate inthe events taking place in the neighborhood, and last but not least he/she isinformed on the different trainings that the CDB is offering in the weeks tocome. Thus, the financial services that the CDB’s deliver also function as atool to increase: people’s confidence, their reception, mobilization and

organization of the community. This is what we referred to when we talk about commercial services that face no competition. In these cases, only aCDB would be able totransform a simple water billpayment into a tool of humanand social transformation.

A Community DevelopmentBank helps in the process of Community Organization.

One just needs to take a look athow a CDB is establishedwithin a community in order toperceive its great capacity toorganize and mobilize. First of all, several meetings need totake place, where it is decidedwhether to open the bank or

not. Later on the community chooses – or ratifies– the social organizationthat is going to be responsible for the management of the bank. Once this isdone, the discussion relating to everything about its functioning begins: firstthe name of the bank, the name of the social currency, the branding, theproducts, the credit lines, the services and priorities of the bank, summingup, the whole strategy of the CDB within the area of operation.



10

From there the community selects the managers and credit agents that wouldbe instructed on how to run the bank and its day to day tasks. All thatprocess in itself helps to mobilize the community and contributes to thedevelopment of the social actors in the region. As a consequence, thecommunity is also going to collect and demand results as well as voice itsopinion. Exercising in that manner a social control over the bank

Thus, it becomes clear that the CDB is much more than just an institutionthat establishes itself in the community simply offering financial services. Itscontribution goes beyond that. An agreement is made with the logic of confidence and complementarily which requires dialogue and a communityorganization process. The strategy for economic development organizes andfinances producers and consumers putting each side in constantcommunication and interaction. The credits are granted through the guaranty

of the neighborhood where the neighbor vouches for the ethical behavior of the credit applicant.In order to make the social currency circulate within the community severalinformation sessions have to be organized, along with education campaigns,visits to entrepreneurs and social organizations within neighborhood. Thispermanent relationship bank + resident + producer + merchant generatesynergies for a strong community mobilization process. The participativeprocess constitutes an important part of the DNA of a CDB. Without thestrong participation/involvement of the community the methodology isunlikely to succeed. As a result the CDB’s are also training schools wherepeople learn to become active citizens, creating/developing what is referredto us human capital, i.e. organized people, expressing their views anddeciding about the future of the community.

The Community Development Bank gives visibility and credibility tothe neighborhood/municipality and the Community Local Organization

It is important to remember that a community is not able to establish a bank every day. The audacity to create a CDB, offering credit and other financial

services for the community, puts the neighborhood/municipality and themanaging association of the bank in foremost position.

Experience shows that communities that establish a CDB, in a short periodof time, are able to increase their credibility inside and outside thecommunity itself. This is easily explained when observing three criticalaspects: first, the bank is owned by the community itself and managed by a



11

local community organization; second CDB’s are always established in areascharacterized by poverty, therefore lacking public and financial services, asa result CDB’s become relevant in the development of the area; thirdlyoperating a circulating social currency, a situation never experienced by thecommunity and hence, completely strange to the regular functioning of thecommunity.

All CDB’s gain rapid access to the media, and frequently appears in thenews. Usually, a CDB becomes well known relatively soon at the nationallevel. This visibility, if properly used can turn into a powerful tool for thecommunity, since itincreased the credibilityand influence of theneighborhood to be

recognized as a space forsocial innovation. Withthe implementation of the CDB, theneighborhood/municipality is seen as part of thesolution, and even if italready had thatrecognition, it ratifies itscapabilities in socialentrepreneurship.The visibility and recognition fuel other victories for the CDB and thecommunity. Thus, it is essential that the name of the bank, its currency,brand and logo, carry the identity, characteristics and culture of the localcommunity, linking the image of the bank with its own community. Last butnot least, one has to remain weary of the glamour brought by the media. Itonly makes sense, if things are actually happening. Daily practices are farmore important than the fame or popularity that might come from them.Besides, when don’t work out, the media goes away just as fast as it arrived

The Community Development Bank opens the door for new financingopportunities.

Our experience shows us that in the majority of cases, within a year of opening a CDB, the local organization in charge of the bank increases itswealth by 100% to 200%. Not only due to its financial revenues: loans,



12

interest rates, fees, but also because since the day it opened its doors, it hasbeen able to find new sources of funding from other partners. New partnersare gained because CDB’s represent:

a) A great entrepreneurial reference with social technology and aninnovative capacity in the community

b) A great product that serves as an example to other communities

c) A practice that positively impacts people’s lives.

Another important factor is thatthe CDB functions in theterritory integrated with the

local production chain. Thebank fosters credit, production,commerce and consumption.This diversity opens thepossibility for new projects indifferent areas. Indeed, this isnot automatic. It does not takeplace in the same way in everysingle CDB’s. Each bank depending on its organizationalstructure and capacity toformulate ideas is able to getbetter results in more or lesstime. It is important to have asense of opportunity and to takeadvantage of the chances thatlie before you. Theseopportunities can appear in aseminar, in a visit to the bank,

in an interview, during a trip orwhen reviewing a project. It isimportant to always be ready and willing. In this respect the followingrecommendations can be useful when trying to obtain new sources of funding: Always have ready and in hand an “explanatory brochure”



13

To have one or two strategic projects prepared and a “brochure” inhand

Create the proper office atmosphere.

Having ample knowledge of the numbers and the ability to explaintheir meaning with clarity.

Emphasize the potential of a CDB and other common procedures

It is a key to be aware that a CDB can function as a large bridge that takesthe community to new and concrete financial possibilities. Crossing thebridge is something that depends on the strategy and effort of eachorganization.

A Community Development Bank boosts the Territorial Capacities

The whole dynamic of a CDB requires a huge learning process for the localleadership and the community as a whole. Learning on the financial andeconomic fields, therelationship with thepublic sector,conflict

management,interaction with themedia, creativity,and showingaudacity in manyother fields. Thecommunity, studies,worries, learns, isbetter informed, isempowered and thusparticipates in the discussions in a more decisive way. However, this processof training and learning is only one more benefit to having a CDB inside theneighborhood.

The strengthened territorial capacities help foster several movements such asthe appearance of new leadership, the development of new struggles, new



14

victories, and an increased citizen eagerness, mobilization and participationof the population. Here lies the true sustainability of a territorialdevelopment project: the territorial capacity to create new leaders in order tocontinue its actions with the firm believe and the local technical skill to takethe project forward.

The Community Development Bank and the Legal Framework

Thus far there is no legal framework for the CDB’s. This does not makethem illegal. The products developed by the CDB are all within the law:credit, circulating social currency, creating of businesses and socialenterprises, shops, fairs and so on and so forth.

Even when we put all that together and we call it Community Development

Bank, there is no national law that regulates it, i.e. which acknowledges theexistence of this instrument referred to as CDB. The importance of the legalframework is critical in order to have access to funds from the federal budgetand also to guarantee public policies within the state and municipal spheres.



15

HOW TO ESTABLISH A COMMUNITY DEVELOPMENT BANK IN A

NEIGHBORHOOD/MUNICIPALITY

Required logistics and resources

Generally, in order to establish a CDB it is necessary to mobilize resourcesto:

a) Encourage: the process of community mobilization, the training of resident and bank managers, the development of management tools and oneyear subsidies for the credit agents.

b) Local infrastructure: office, computer, internet…

c) Credit: starting resources in order to promote production and consumptioncredits

d) Local management entity: it is required to have a local organizationresponsible for the management of the bank.

The ways to mobilize such resources can vary greatly. Normally, besidesother types of support, one counts on local governments.



16

FAMOUS COMMUNITY DEVELOPMENT BANKS

One of the best known community development banks was ShoreBank,founded in Chicago in 1973.ShoreBank had branches inChicago’s South and Westsides, Cleveland, and Detroit.The bank establishedsubsidiaries that provide equityinvesting, consulting, and

environmental banking servicesand affiliated nonprofits thatprovide related financing,technical assistance, andconsulting services. ShoreBank and its affiliated companieshave projects in 30 countries.Notably, ShoreBank incorporated environmental conservation into itsmission during the 1990s. On August 20, 2010, ShoreBank's bankingoperations were closed by the FDIC, reopening under Urban PartnershipBank.

The first Community Development Bank was founded in January of 1998 inthe neighborhood of Conjunto Palmeira, Fortaleza, and Ceará. By 2003, thesolidarity finances methodology of CDB’s is being discussed in severalmunicipalities as an effective instrument in the generation of income for thepoor. One year afterwards, in September of 2004, the second CDB is openedwith the name of Banco Par, in the municipality of Paracuru, Ceará, 70 Kmsaway from Fortaleza.

By 2005, two more banks are established in the state of Espiritu Santo –Banco Bem (Municipality of Vitoria) and Banco Terra (Municipality of VilaVelha). Year after year more banks are established taking us to our currentnumber of 46 CDBs and growing. All CDBs are spread over the states of Pará, Maranhão, Piauí, Paraiba, Bahia, Espiritu Santo, São Paulo, MatoGrosso do Sul and Minas Gerais.



17

The Grameen Bank of Bangladesh is a microfinance organization andcommunity development bank foundedby Muhammad Yunus. The bank has grown intoa family of over two dozen for-profit andnonprofit enterprises including the GrameenFoundation, and the Grameen Bank and itsfounder were awarded the Nobel Peace Prize in2006.Other famous community developmentbanks (CDB’s) or community developmentfinancial institutions (CDFI’s) or Eco banks are

Albina Community Bank in Portland

Carver Federal Savings Bank in New York, NY

Central Bank of Kansas City in Kansas City, MO

City First Bank of D.C. in Washington D.C.

Dryades Savings Bank in New Orleans, LA

Hope Community Credit Union in Jackson, MS

Liberty Bank & Trust in New Orleans, LA

Louisville Community Development Bank in Louisville, KY

Neighborhood National Bank in San Diego, CA

One Pacific Coast Bank in California, Oregon, Washington

Southern Bancorp in Arkadelphia, AR University National Bank in St. Paul, MN

One United Bank in Boston, MA



18

COMMUNITY DEVELOPMENT BANKS V/S ISLAMIC BANKING

Islamic Banking has some concept as CDB’s If yes, how?

The major difference between CDB’s and Islamic banking is that:

“No concept of profit and loss sharing”& “Prohibition of Riba (Interest)” in CDB’s

Islamic banks and CDB’s have two similar concepts like issuing loans,supporting people & communities, and operating profitably another similarconcept is the area restriction described in the next question



19

Area Restricted factor takes away from Islam?

The concept of area restriction is not prohibited in Islam. In the distributionof Zakat, the first priority is given to thepoor family members and theneighborhood. So this concept is similarto the Area restriction of CDB’s i.e. thefirst priority is given to community incase of employment opportunity of bank or any other financial facilities.

Why only micro credits are providedby the CDB’s? Why not involving

other institution for assistance?

CDB’s aren’t able to return the macrocredits because they are not working as acommercial bank who gives financialassistance to middle class and high class people at higher interest rates. Theyare working for in low-income communities and gives financial assistance atlower interest rate for their development. CDB’s lend the amount which iscollected through funds and donation of the Government & the members of the community



CONCLUSION

The mission is to support and provide resources for low-income

communities which are traditionally financially underserved. Unlikeordinary banks with one (financial) bottom-line, community developmentbanks also consider the social impact of the loans they make, and measuretheir success based on a double bottom-line (supporting people andcommunities, and operating profitably) or a triple bottom-line (which alsoincludes environmental impactCDB’s are aimed at a public characterized by a high degree of socialvulnerability. In particular, because of its condition as a citizen’s initiativefocused on the development of the area. Such experiences should alsoinvolve other types of publics in some specific market segments, forinstance: women, the youth, merchants, new entrepreneurs, etcThe community development banks assure financial and banking services todifferent communities. It helps in the process of Community Organization.The CDB’s gives visibility and credibility to the neighborhood/municipalityand the Community Local Organization. It opens the door for new financingopportunities & boosts the Territorial Capacities with in the LegalFramework One of the best known community development banks was ShoreBank,founded in Chicago in 1973. Another first Community Development Bank

was founded in January of 1998 in the neighborhood of Conjunto Palmeira,Fortaleza, and Ceará.The major difference between CDB’s and Islamic banking is that: “Noconcept of profit and loss sharing” & “Prohibition of Riba (Interest)” inCDB’s. The concept of area restriction is not prohibited in Islam. In thedistribution of Zakat, the first priority is given to the poor family membersand the neighborhood. So this concept is similar to the Area restriction of CDB’s i.e. the first priority is given to community in case of employmentopportunity of bank or any other financial facilities.CDB’s aren’t working as a commercial bank who gives financial assistanceto middle class and high class people at higher interest rates. They areworking for in low-income communities and gives financial assistance atlower interest rate for their development. CDB’s lend the amount which iscollected through funds and donation of the Government & the members of the community

Documents

Report on Community Development Banks