Microlending in Haiti

Microlending began in Haiti in the 1940s. It was introduced by Catholic missionaries. Charitable organizations from outside of Haiti continue to dominate it. Primary funders are overseas government and charitable institutions, such as CIDA, EU, and NGOs such as WVI, ACF, ADEMA, CARE, and the Red Cross.  In 2009 USAID and the Bill and Melinda Gates Foundation made US$36.7 million available to the Haitian microlending industry and the WOCCU (World Council of Credit Unions) is the lead implementer on a three-year US$34.4 million multi-partner program. Totaled, that’s $71.1 million, $23 million more than the US$47,236,431 the entire industry had on loan in 2010 and only US$10 million shy of a combined US$80,631,795 assets of all Credit Unions in Haiti.

But, while interest rates hover at levels that would make most Wall Street investors salivate, the industry is not and perhaps never has been self-sustaining. FONKOZE for example, bills itself as successfully engaged in building a financial sector. With 273,212 members is the largest rural lending institution in rural Haiti.  But after 20 years it still operates in the red.

Equally important to understand is that most peasants do not like microcredit.  At 60% to 72% per year for small borrowers, farmers consider FONKOZE rates extravagant and worthy of eschewing.

Why farmers eagerly join lending organizations may have more to do with inducements other than borrowing. FONKOZE, for example, might provide high-interest loans, but it also gives impoverished borrowers stipends,  has a three-month default rate close to 10%, and borrowers who do default can re-enter the program and default all over again.

An excellent illustration of the degree to which the institution is charitable, rather than developmental, is that following the 2010 Earthquake FONKOZE “forgave” 10,000 loans and then gave clients another US$125 each–five times the amount of their introductory loan. This is noble. After all, there was indeed an earthquake. But why Haiti’s leading “financial” institution decided to dump its entire portfolio as a charitable gesture is not clear.  Most of FONKOZE beneficiaries live in rural areas, meaning the earthquake was unlikely to have directly impacted them (imagine us all getting our car loans forgiven because the NYC World Trade Center got bombed). However,  one can be certain of one thing: those rural farmers who were not members of FONKOZE before the earthquake regretted it.  Membership increased from a 2009 level of 198,740 to a 2011 level of 273,212 members.

Also important to know is that there was indeed a moment when business-minded individuals governed Haitian microlending. In 1995 the Haitian government removed interest rate ceilings on loans and lowered reserve requirements. Unscrupulous lenders knew an opportunity when they saw it. In 2002 they used the promise of 20% plus monthly interest rates to convince impoverished citizens, many of them farmers, to deposit their savings. The credit unions–loosely regulated but linked and publicly endorsed by the administration of then president Aristide–bilked farmers out of US 220 million dollars. Consumer confidence crumbled.

Today all credit unions are regulated and linked under federations ANACAPH (Association Nationale des Caisses Populaires Haïtiennes) and/or Levier (Fédération des Caisses Populaires Haïtiennes), KNFP (Konsèy Nasyonal Finansman Popilè) program, ANIMH (Association Nationale des Institutions de Finance d’Haiti) or CECUCCH (the Credit Union of the Christian Co-Ops in Haiti). Nevertheless, in 2010 there was still only US$55 million in Credit Union savings accounts, 1/4th the stolen 2002 sum. [i]

Other critiques can be made of microlending in Haiti and that should, at least, cause one to pause and contemplate what really drives the industry and what are the consequences. Two decades of microlending have targeted almost exclusively women and, more specifically, women who use the money in marketing activity. Giving more money to women for marketing while there is no corresponding investment or increase in production–or even a decrease–is a zero-sum endeavor.  Giving many poor market women more money arguably diminishes the success of larger marketers who can accumulate capital and invest in productive enterprises.

Neglect of investments in productive enterprise does not stop with the poor. While FONKOZE tells donors that “it is in FONKOZE’s Business Development Program that you will also find larger loans to rural agricultural cooperatives producing for export,” and that “this program helps clients become part of the formal economy and create jobs in rural areas where there is very little employment” it’s not clear if it really works that way. In 2008, there had been no new loans to cooperatives “for a long time” and eight that had borrowed money, each of which received at least US$100,000 in loans were in default– amounting to 8% or more of the organization’s current portfolio.

Today, although FONKOZE’s webpage for its Business Development program shows a smiling lower-income woman in her boutique, most  borrowers in this program would be more at home in their own supermarket. At least US$1.8 million of FONKOZE’s US$10 million in outstanding loans is in the hands of 36 individual women. Each borrows $50,000 for three-month periods. They get the money at 30% interest rates, half the rate the poor must pay. At least one, Marie Yanick Mezile, the current Minister of Women and Women Affairs, is not now and probably never was a poor rural market woman.  Like the poor, these elite FONKOZE borrowers also gravitate toward non-productive ventures. Proud of their success, FONKOZE representatives told one inquirer that some are flying to China on buying ventures. That’s good for the Chinese economy, but highly questionable in terms of what it does for impoverished could-be Haitian producers.

I don’t want to be misunderstood on this latter point. I don’t think there is anything inherently wrong or evil going on. But it certainly makes one wonder why the major microlender in Haiti, one thriving on donations attracted by billing itself as earnestly engaged in lifting poor rural market women out of poverty, is gravitating toward elite entrepreneurs who are flying off to China.[i]

Those interested in lending to the poor in Haiti should also be aware that there are alternative strategies to borrowing money, strategies more attractive to marketers. Some are damaging to the local economy. For example, market women often take sacks of imported rice, corn, beans, and sugar on credit. They have 22 days to pay. But instead of retailing the produce in small quantities, they dump it all at below-cost prices to get working capital. They then take the money and buy and sell local produce, an endeavor that yields much higher returns (over 100% compared to 20% or less for retail sales of the imported produce over the same period of time). But there is an ironic and hidden cost to the domestic market: the net effect is that by dumping the borrowed staples at below market prices so that they can get the money to trade, they effectively subsidize imported foodstuffs–foods that are already heavily subsidized by their US and Western countries of origin.

There are also more attractive informal systems of borrowing and capital accumulation that do not hurt the market or the profits for the women engaged in commerce. One is the more traditional system, the one that organizations such as FONKOZE insinuate themselves into. It’s built on the fact that while many lenders portray themselves as empowering Haitian women with the capacity to trade, the women were doing so long before formal institutions showed up. All rural adult Haitian women who have children are engaged in some kind of trade. The traditional strategy is for local women to use money from family and friends, particularly men (sons, fathers, lovers, and husbands). Harvests are not stored but sold as rapidly as possible and the money used in female marketing endeavors.  The women put the money to work in itinerant trade, rolling the money over in purchases and re-sales in local and distant markets. Indeed, it is the engine of Haiti’s internal marketing system. A common saying is, lajan sere pa fe pitit (“saved money makes no offspring”), and what they mean is that money should not be saved but put to work making more money.  But what the lenders want is that farmers put the money in their institutions so that they can be the ones to loan it to the women and at pawn shop level interest rates.

I’m not a banker so maybe it’s naive of me, and albeit the lenders are failing anyway, but something seems to be morally amiss with saying that you’ve come to help the ‘poorest businesswomen in the Western hemisphere’ by redirecting what was their cost-free source of capital and then taking 60% profits.

Another popular means of getting money in lump sums is the revolving savings groups called sol.  Members each contribute a fixed sum of money at a specified period of time (weekly or monthly) and then the members each take turns in taking all the money.  The sol is so entrenched in Haitian culture that it is found at every level of society:  common in urban areas, among professionals, and in the overseas Haitian diaspora. The “sol” is surely one reason why Haitians so readily adapt to VSLAs (Village Savings and Loan Associations), a currently popular new rage among NGOs seeking to help impoverished people in Haiti gain access to capital. The significant difference is the introduction of borrowing, interest, and continuing capital accumulation–all things that Haitian women, whether educated or not, keenly master without the help of NGOs and have been mastering at least since the first anthropologists began to study the Haitian market system in the 1950s.

In summary, microlending remains largely a charitable enterprise that has enormous appeal to donors, but, in the absence of forgiving loans or subsidies for participation, are not so interesting to the market women they portend to help. If worked profitably–as enitites like FONKOZE claim it can be–it could be interpreted as a Machivellian type of economic sabotage. Fortunately, it’s not working. In Haiti at least, arguably the most significant institutional profits are generated not from borrowers, but rather from donors.  Moreover, many of the most successful institutions appear to use hidden inducements to appear successful and attract and maintain clientele, necessary ingredients in wooing donors. VSLAs, on the other hand, use a strategy familiar to all Haitian farmers and market women and with more attractive interest rates–often none.  From a development standpoint, the missing ingredient in the VSLAs is providing the members with productive investment opportunities.

[i] The information on FONKOZE elite investors comes from another consultant who writes in an email,

“In my conversations with FONKOZE the only big Madam Sara group they support (so far) are 36 women all associated with ACSI. They receive 50,000 USD each every three months, while ti madan sara may borrow 3.000 gourdes (75 USD) per group of 5 women, every three months.”

The information on total loans comes from FONKOZE’s webpage

http://fonkoze.org/aboutfonkoze/keystatistics.html

The exact figures are 438,537,782 gourdes in outstanding loans = US$10,318,536

[i] http://www.animhaiti.org/index.php?option=com_content&task=view&id=18&Itemid=33