How microfinance can help Haiti’s long-term recovery and transform its economic potential
Haiti is one of the world’s poorest countries and it’s painfully susceptible to natural disaster. As it recovers from the devastation of Hurricane Matthew, could a new banking model lay foundations for Haiti’s future resilience?
As the poorest country in the Western Hemisphere, Haiti faces a staggering set of challenges, regularly compounded by natural disasters such as the devastating earthquake in 2010 and Hurricane Matthew last year. For many of its citizens, survival in the short term, and just getting by without many of the luxuries we take for granted, trumps any other concerns over the long term.
The nation’s immediate priorities are continuing to provide food, clean water, sanitation and shelter. Yet, further on the horizon, what does a broader recovery for Haiti look like — one that includes less poverty, greater equality and economic opportunity?
Addressing the financial challenges of the world’s poorest
According to the World Bank, Haiti’s economic growth was a low 1.2% in 2015 and is expected to be a meager 0.8% in 2016. Haiti is also one of the world’s most unequal countries. But it stands to gain from new advances in a sector that, all too often, is portrayed as negligent or a cause of much global ill and inequality: high finance.
Banking has long been a service beyond the reach of many Haitians. This is particularly pronounced in the country’s rural areas, since 66% of the country’s banks are located in or around the capital, Port-au-Prince. Without affordable and reliable financial services, underserved Haitians end up in the hands of loan sharks — and then further into the vicious cycle of poverty.
But now, new banking technologies and techniques are helping to deliver access to banking services in an efficient way to those who need it most, including millions in Haiti, through microfinance. These innovations are finding new solutions to some of our oldest problems.
Microfinance: helping people to help themselves
Microfinance is a branch of finance dealing with very small transactions and amounts. Catering largely to small businesses and individuals, microfinance service providers can issue small loans to cover immediate business costs, which could be just a few hundred dollars. Microfinance providers, who deal with much smaller and more repayable sums, enjoy much lower rates of default than the major banks.
Microfinance providers are particularly suited to markets like Haiti, where long-term issues with social and economic infrastructure have led to problems with the availability, value and trust of traditional finance services providers.
Increasing smartphone penetration in poorer nations is encouraging the use of mobile banking, which is often more practical than using major banks. These digital banking infrastructures such as those provided by Fonkoze – originally founded by a group of Haitian community leaders back in 1994 – are in some ways more resilient and adaptable than traditional banks. In fact, Fonkoze was the only financial institution to reopen the day after the 2010 Haiti earthquake.
Helping Haitian communities through finance
Fonkoze focuses particularly on providing finance for Haitian women, 44% of whom are the sole heads of their households in the country but many of whom are not equipped with the tools and know-how to properly manage their resources. With estimates that US$28 trillion could be added to the world economy if the role of women in global markets was equal to men, helping them access secure and reliable credit is a promising avenue to help alleviate Haiti’s poverty epidemic.
Fonkoze serves its customers in three key areas: saving accounts, small-scale lending and facilitating overseas transfers. It is the largest women’s microfinance provider in the country, and oversaw US$75m across 215,000 in transfers in 2015 alone. In the same year the company serviced 200,000 savers, 60,000 borrowers and 215,000 remittance payees.
Fonkoze enjoys particularly strong repayment rates because the credit group, or “solidarity group,” as Fonkoze terms it, is the chief borrowing unit. One credit default in the group affects credit for the whole group. Thus, there is strong social and economic incentive for everyone to mutually support and pressure each other into financial responsibility.
Educating for economic resilience
Fonkoze positions itself as Haiti’s leading alternative bank for the country’s poor, providing a service that integrates lending to marginalized customers along with more grassroots social organization and knowledge-building initiatives. These are all designed to improve financial knowledge, boost business skills, and improve the country’s long-term economic potential.
These financial education efforts include the Chemen Lavi Miyo program, which teaches women asset management, and the Ti Kredi program, which lets them slowly build credit through staggered loans over the course of a few months. The schemes are designed so that participating women progress through each program in turn. If all goes well, they should emerge at the other end as trained micro-entrepreneurs.
So far, Fonkoze’s programs have been enjoying strong rates of success – 92% of participants graduate from the Ti Kredi program, while close to 100% of those then are able to afford to send their children to school.
Health and education
The company also offers health and education programs. This, just like the financial education programs and microfinance initiatives, makes good long-term business sense. The healthier, better educated and more knowledgeable about business and finance they are, the stronger and more resilient their local economies should become. This, in turn, helps create a stronger, more prosperous customer base for more financial services.
“When very poor people have access to a savings account, small loans and a way to receive transfers from family members abroad, their businesses can grow, their children can go to school and there’s food on the table,” says EY’s Klaus Hoffmann, who helped advise Fonkoze on financial management and accounting services.
Before working with EY, Fonkoze had already established a strong alternative banking product with strong rates of repayment. However, its potential to scale its service to reach the broadest base of customers possible was undermined by internal inefficiencies. To solve this, Klaus helped make Fonkoze a more sustainable, scalable business by implementing new ways of working. These included bringing Fonkoze’s accounting practices up to international standards, implementing training programs, and setting up a new organization structure with clearly defined roles, responsibilities and reporting lines.
By its very nature, microfinance starts small. Yet, Fonkoze has demonstrated how microfinance initiatives can equip people with the means and the skills to move themselves and their families out of poverty.
Ensuring long-term resilience
While basic infrastructure repair, shelter, food and sanitation are understandably the most immediate concerns for all suffering Haitians, particularly after Hurricane Matthew’s destruction, the government and citizenry alike need to look further ahead. Haiti’s long-term recovery and future resilience wholly depends on alleviating the country’s extreme poverty and breaking the vicious cycle.
As a nation that has suffered more than its fair share of devastating tragedies, microfinance offers more Haitians an avenue to strengthen their economic resilience against future shocks – something traditional banking has failed to provide for the great majority.
Microfinance enables a greater number of people to build up the assets that can help them through extreme flashpoint events and provide an avenue to slowly transcend poverty, thereby helping to tackle the country’s massive inequality.
The mass expansion of microfinance in Haiti could well help make it experience more inclusive growth by ensuring the country’s future prosperity is shared more equally. Short-term economic growth alone will not solve Haiti’s structural poverty and its ill effects. The country needs egalitarian growth across the board to boost consumption levels and ensure long-term economic well-being for the rich and poor alike.