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City of God may not have the highest literacy or lowest crime rates or sufficient economic opportunities for 67,000 inhabitants but in a major step forward, one of Rio de Janeiro’s most notorious favelas will have its own community bank and its own currency.

City of God was built in 1960 as part of a government program to move citizens from precarious slums to other parts of the city. Although it was constructed with more solid infrastructure, the social and human development indicators for City of God remained and remain among the lowest in Rio de Janeiro. Isolation and lack of economic opportunity made the community extremely susceptible to drug trafficking and crime, plaguing it with astronomical violence and social ills.

These phenomena were showcased in the 2002 film, City of God, which put Rio’s problems of inequity and violence on display for the world. The community had begun organizing in the 1980’s but increased federal and state attention, partially spurred by the film’s reach, created an even more fertile ground for reforming City of God. Indeed, in the past few years, City of God has established a wide variety of job training, health improvement and social services programs. In 2008, the state government funded a web portal and wireless Internet for the entire area. In 2009, the UPP (specialty police units established to neutralize gang activity and violence) were instituted in the community, catalyzing a dramatic reduction in crime. Between now and 2016, a series of infrastructure improvements are planned in preparation for the World Cup and Olympics, including construction of an expressway that will dramatically reduce transit time and access for City of God residents. All in all, things are looking up.

And now, Cidade de Deus (or CDD, as it is locally known) will have its own bank and currency. The initiative is part of collaboration between City of God, Rio’s Secretariat for Economic Development and the federal bank, Caixa Economica Federal, which will launch in August 2011. Modeled after Banco Palmas, a community bank established in Fortaleza over 10 years ago, CDD’s community bank will be the first of its kind in Rio de Janeiro. The project foments local economic development in two ways: by providing financial services to previously unbanked local businesses and populations by improving the sales and revenues of micro and small business within the community.

As opposed to many local banks that require extensive documentation to open an account, the CDD community bank will only require identification and a minimum deposit. While the bank will repay Caixa Federal and offer commercial loans in Brazilian reais, it will dispense the community currency, the CDD, to residents. Moreover, even tourists can change reais to CDDs upon entering the community.

The CDD is deliberately set approximately 20 percent higher than the real, which incentivizes users to use it within all local business. Since this artificially discounts products sold in local enterprises, it compels residents to keep more money in the community, thus fueling growth of local businesses. The currency will be available in notes of 1,2,5, and 10 units and will feature the faces of local community heroes, such as Dona Benta, founder of a local community organization. Currently, the Secretariat and Caixa Economica Federal are working with community agencies from CDD to finalize details of loan amounts and terms with operations beginning in August 2011.

Across Brazil, there have been numerous new programs, including microfinance, which aim to expand access to financial services among the poor. However, community banks are distinct in their integration with the community social structures and more reasonable interest rates – the addition of a localized currency is another innovation to expand impact at the base of the pyramid. Given its location and terms, its likely that CDD Community Bank will have no shortage of interested customers, a market of 40,000 people. There has been no mention of federal or municipal plans to expand the scheme to another municipalities within the city, but the nearby municipality of Duque de Caxias is implementing a similar scheme in a low-income community called Saracuruna.

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