Thursday, April 29, 2010

Is Haiti's Micro Credit Industry the Path to a Better Haiti?

A new venture between Fonkoze USA and The Toronto, Canada based MasterCard Foundation aims to eventually benefit 70,000 people by offering micro credit to extremely poor women in rural communities in Haiti by helping them to create new livelihoods. The need for a hand-up is great, because since the Haiti earthquake, nearly 600,000 people have migrated to the countryside, creating huge economic and social pressures on destitute communities there.

Fonkoze USA is Haiti’s largest microfinance provider and the $4.5 million "investment" says MasterCard Foundation, aims to "enable Fonkoze’s long-term recovery "by re-establishing its headquarters and branches destroyed in the earthquake."

Exploring the information available on the MasterCard Foundation and Fonkoze websites, it soon becomes apparent that this partnership is an open relationship.

On the one hand, MasterCard is coupled with MasterCard Worldwide – which bills itself as "The Heart of Commerce." In this relationship, MasterCard Worldwide brings home the bacon, having established the MasterCard Foundation with "a generous gift of shares" at its initial public offering in 2006. No need to worry though, Fonkoze, "The MasterCard Foundation is an independent, private foundation with over $3 billion in assets."

Of course, profit margins are the touchstones of a credit card company such as MasterCard Worldwide, so one shouldn't expect that the MasterCard Foundation is any less concerned with the bottom line. In fact, on its website, the MasterCard Foundation, expresses a belief in "market-driven programs" and features a quote by controversial economist Milton Friedman: "The poor stay poor not because they are lazy, but because they have no access to capital."

Mr. Friedman's methodology was laissez-faire economics, which basically "means allowing industry to be free from state intervention. The French meaning of the term "laissez-faire"1 literally means "let it be." It's interesting to note that "some of his [Friedman] laissez-faire ideas concerning monetary policy, taxation, privatization and deregulation were used by governments, especially during the 1980s." Deregulation is seen by many economist as a focus of blame for the current global economic crisis.

On the other hand, Fonkoze, which has total revenues of about $1.7 million, has a rather more altruistic motto: "Building the economic foundations for democracy in Haiti."

Fonkoze is involved in several liaisons – to continue with the French theme. Interestingly, they are linked to USAID and their Canadian counterpart CIDA through their close relationship with Mennonite Economic Development Associates (MEDA).

According to the MasterCard Foundation, "[b]oth organizations have worked closely for more than 15 years. MEDA is an investor and a board member of Fonkoze." On the MEDA website they acknowledge unspecified support from the U.S. and Canadian government: "MEDA gratefully acknowledges the support of CIDA and USAID."

What does non-governmental agency (NGO)2 mean anyway? Evidently, it's complicated.

MasterCard Foundation's Video tells
"the story of how microfinance will help Haiti rebuild."

MasterCard Foundation's global public relations agency, Weber Shandwick, describes the MasterCard/Fonkoze venture this way:
"[...] about the loans, during the course of this program, 4,000 women in two rural areas - Lower Artibonite and the Central Plateau – will receive initial loans of $20-$25, which carry an interest rate of 89 cents. The repayment period – eight months – is combined with intensive literacy and business skills classes, and counseling on how best to invest the loans. Following repayment, the women are ready to join Fonkoze’s microfinance groups, where first loans start at $75.

Fonkoze will also work with another 1,000 women in those area who, according to their wealth rank score, qualify as extremely poor. Working with these women, Fonkoze will help them to determine which enterprise might work for them and provide a needed asset (livestock). As they are trained and begin their businesses, they will be provided a short-term stipend to cover basic needs. They’ll graduate into the program described above after 18 months.

As for local control - Fonkoze was founded in 1994 and currently serves more than 225,000 clients through 41 branches. Its leadership will manage this program in cooperation with Mennonite Economic Development Associates (MEDA), which has operated in Haiti since the early 1980s. So, while the funding for this program was provided by a Toronto-based Foundation, the program will be implemented locally and in accordance with local laws."
They have an interesting way of expressing the interest rate. The interest rate is usually in percentages. Why not express the interest rate in a straightforward manner that everyone can understand? One can only hope they will make their interest rate system clearer for the benefit of their extremely poor and mostly illiterate clients.

"New Interest-Free Microloan Initiative Launched for Haiti"
Additionally, Fonkoze is now part of a new partnership. It is called Zafen. Zafen, an article on HuffPost declares, may just be "the right program" which will benefit everyone. It is "a new interest-free microloan initiative enabling lenders and donors to finance small and medium-sized Haitian businesses."

The four organizations comprising Zafen are:
1) Fonkoze USA – Haiti's alternative bank with 41 branches, 200,000 savings accounts, 47,000 borrowers and 15 years of experience covering rural Haiti;

2) The worldwide Vincentian Family – a network of groups numbering one million strong that derive their inspiration from St. Vincent de Paul;

3) DePaul University – the largest Catholic university in the United States;

4) Haitian Hometown Associations Resource Group (HHTARG) – which enables the Haitian Diaspora to foster economic and social growth to alleviate poverty in their native communities.

A Haitian woman tending her garden is working her way out of extreme poverty with the support of a Fonkoze micro-loan.
(Photo: MasterCard Foundation)

Excellent. No interest micro-loans!

In the interest of full disclosure, Fonkoze's altruistic bankers will have to tell their poor illiterate clients about the new Zafen program, since it offers participants these great "new interest-free" micro-loans.

Reportedly, the Vincentian Family Board responsible for Zafen conceived the program in "meetings with Haitians living abroad [when they] generated the idea of creating a website showcasing sustainable and viable projects and enterprises in need of a loan or donation. [...] These lenders and donors fill the void traditional banks have left in many world economies."

A quick check of the Fonkoze website today (04.29.10), shows that they have not yet announced the new Zafen collaboration. However, Fonkoze is announcing the expansion of their "Financial Services":
Fonkoze Financial Services (FFS) is a Haitian commercial microfinance institution that takes profitable branches and well-tested products from Fonkoze and expands them, reaching hundreds of thousands of Haitians, especially those living in the hardest-to-reach rural areas.

Fonkoze is in the process of spinning off its financial services into a high-growth, full service bank with the mission of providing the rural population of Haiti with a full range of financial services designed to generate self-reliance and promote a democratic economy in Haiti. The name of this institution is Bank Fonkoze. S.A. A commercial banking license from the Central Bank is pending. In the interim, Fonkoze Financial Services was incorporated in 2004 and will undertake all of the operations of Bank Fonkoze until a commercial banking license is granted.
The problem is, Haitians will tell you they already use micro credit businesses like banks. A client may take daily loans or overnight loans from a micro credit entity. In a typical scenario, some of the borrowers are meat sellers who will price a cow or a pig, go get the money from a micro credit place, pay for the animal, then go to a restaurant who had a pre-arranged agreement to buy the animal. The micro credit client becomes a middle man and only spends hours with the animal before selling it. The micro credit outfit makes a handsome profit that same day, maybe in a matter of hours.

The microfinance outfit ACME launched its operations in Haiti with a "$350,000 loan capital grant from USAID" and recently "celebrate[d] 10 years of success[ful]" micro-financing in Haiti:
"ACME’s recent 10 year celebration highlights USAID/Haiti’s 10 years of support to Haiti’s microfinance sector. Founded in 1997, ACME has become a leader in the Haitian microfinance sector, with a client base of 20,169, of which 69% are women, and a total portfolio of $23.2 million as of December 2007. Its list of achievements is even more impressive when considered against the background of Haiti’s economic and political instability during this period. ACME is one of Haiti’s leading MFIs as well as a defining example of USAID/Haiti’s role in building Haiti’s robust microfinance sector and in encouraging growth and geographic expansion."
All of this "commercial" growth and the burgeoning of business partnerships in the name of "charity" and "democracy" is coming on the heels of the disastrous earthquake and there is a term for that – disaster capitalism. It was at work before the disastrous earthquake of January 12 and it is expanding exponentially in the wake of the disaster. The capitalists are descending on Haiti full force to take advantage of the horrific situation. Haitians who don't know where their next meal is coming from, nor when they will have a decent roof over their heads are pitifully vulnerable to these micro credit entities.

NGOs are not a "path to a better life" in developing countries. Back in 2003, then United Nations Secretary-General Kofi Annan revealed: "Funds should be moving from developed countries to developing countries, but these numbers [almost $200 billion] tell us the opposite is happening."

In Haiti and the Aid Racket, How NGOs are Profiting Off a Grave Situation, Nikolas Barry-Shaw of Haiti Information Project (HIP) explains the NGO situation in Haiti:
"[...]Agriculture provides a telling example, as Nazaire St. Fort reports: "[M]ore than 800 NGOs work parallel with the agriculture ministry, but most define their own priorities." The Association National des Agro-professionnels Haïtiens (ANDAH) explains that of the "3.4 billion gourdes (91 million dollars) budgeted for public investment in 2006-2007, 3.2 billion (85 million dollars) are managed by NGOs."

[...]The NGO nexus aims to succeed where repressive force has failed, "killing with kindness" in an attempt to suffocate the vibrant grassroots activity that overthrew the Duvalier dictatorship and brought the Lavalas movement to power. As one Haitian peasant told anthropologist Jennie M. Smith, "They call it development, but it is more like envelopment!

[...] The growth of NGOs and the atrophying of the Haitian state are in reality two sides of the same coin; the role of government is reduced to implementing neoliberal policies favorable to foreign capital while managing the haze of NGOs that effectively run the country, with the UN occupation in the background, ready to dish out the necessary repression."

1Laissez-faire economics is the belief that economic imbalances are self-correcting, not requiring intervention by government so long as the equal rights of individuals are respected. The Laissez-faire principle is also referred to as the principle of Spontaneous Order or the Invisible Hand of the Marketplace.

The earliest recorded use of the term "Laissez-faire" in this context may have been by French minister René de Voyer, Marquis d'Argenson, a champion of free trade, in 1736:

"Let it be, such should be the motto of every public power, ever since the world is civilized... A detestable principle that we cannot grow but by the lowering of our neighbors! [emphasis added] There is nothing but mischief and malignity of heart that are satisfied with that principle, and interest is opposed to it. Let it be, damn it! Let it be!!

2 A non-governmental organization (NGO) is a legally constituted, non-governmental organization created by natural or legal persons with no participation or representation of any government. In the cases in which NGOs are funded totally or partially by governments, the NGO maintains its non-governmental status by excluding government representatives from membership in the organization. Unlike the term "intergovernmental organization", "non-governmental organization" is a term in general use but is not a legal definition. In many jurisdictions, these types of organization are defined as "civil society organizations" or referred to by other names.

“True charity is the desire to be useful to others without thought of recompense”
– Emanuel Swedenborg

UPDATE 06.02.2010: The Limits of Microcredit— A Bangladesh Case (PDF)


AlexJB said...

Help me out here, please, because it's clear that you have a TON of information.

What is your conclusion? Are you suggesting that all micro-credit solutions are a bad idea for Haiti? Are you simply not fond of Fonkoze? Are you just dissatisfied with their self-serving position and PR?

Do you mistrust all non-governmental organizations?

Your post puts out a lot of facts, and your heavy use of "ironic quotes" suggests skepticism and sarcasm, but after reading through, I remain unclear on what exactly you would propose to do differently, or even what exactly about this situation is unacceptable. I don't even know whether or not I agree or disagree with you because I can't tell what your position is :-)

thezenhaitian said...

Microfinance companies have been in Haiti for decades and although ACME, for one, pats itself on the back for it's "accomplishments" – what the NGOs have done is to emasculate and weaken the Haitian government and economy. Was that an 'unintended consequence?" Probably not.

I have no particular bad feelings towards Fonkoze, but they are representative of the self-serving, self-preserving nature of these NGOs. They would be out of business if Haiti suddenly became self-sustaining.

I just think the evidence shows that a shell game is being played by these AID agencies in Haiti. Haitians get the exact opposite of what they are promised - always. The promises have a hollow ring because they are meaningless.

Haiti has become the victim of a cynical experiment in neo-liberal politics. Neo-liberalism has been a failure for both the developed countries and third world countries... Haiti is always the testing ground for these mad politicians and economist.

Let's face it, Haiti has no real sovereignty. Haiti is being run by the int'l community and aid organiztions, it has been since the first coup and probably even before that. That was probably by design.

Economic empowerment will come to Haiti when Haitians run their own country. Stop the racist paternalism. Let Haiti live. Respect Haiti's sovereignty.

so ye said...

This economic model seems to be based on the same type of indebtedness that brought many households in the US in financial distress and finally bankruptcy.

Once one got oneself ensnared in it, one cannot escape it.

The main differences between this type of indebtedness and the one in the US are:

It is being done under some fake altruism. There is no check and balance built into it to prevent abuse.

The Haitian government having been made impotent cannot intervene on behalf of its citizens to require that these financial entities be more transparent, and be held accountable for any shady dealings.

so ye said...

Haiti was the first country where physical slavery was replaced with another type of slavery in the form of "independence debt".

Both types of slavery had the same outcome: sheer exploitation of one group of people for the benefit of other nation states.

The same nations that benefited from these previous types of slavery are proposing yet a more opaque, more difficult to trace type of slavery called microfinancing under the disguise of altruism.
Every individual is ensnared in some type of debt he/she will never be able to repay in the long run as every successful debt repayment is progressively replaced by a higher one.

Already individuals working in sweatshops in Haiti are forced to borrow money from the owners/masters in order to afford things such as food, water, bus fares and other basic necessities of life since the pittance they received is not enough for them to get by. Once a worker becomes indebted to his master/owner, s/he has no other choice but to continue working for the master in order to repay a debt that can never be repaid.

so ye said...

in the video sent earlier about the graduates of ti kredit, notice how she mentioned that here counselor Doudou, a man after all, ask her to eat cautiously so as to not destroy her business.

This begs the question of how much interests do these loans recipients must pay back on these loans that she wishes one day she can feed herself well?

AlexJB said...

Thanks for clarifying your position, zenhaitian.

I agree with you entirely that Haiti cannot thrive until Haitians run their country. The path to that point remains as clear as mud to me.

It's fun to rail against the money-holders, and it's true that they're rich because they're selfish and they only engage in actions that profit them. But to say that microfinance is bad because people are profiting from it is to throw the baby out with the bathwater!

Lumping microfinance in with slavery by indebtedness as maggie does is painting with a very broad brush indeed.

scenario 1: micro-loans are available, which maggie says forces a person into indebtedness slavery.

scenario 2: remove micro-loans, and the person who was using them now has no capital available at all. Are they better off or worse? I honestly don't know - maybe they're better off? Would it force them to do something radical to change an unmanageable situation?

scenario 3: i don't know! what is it? what's a better solution? Kick ACME and Fonkoze out of Haiti? Kick out all the foreign aid that can be traced back to a major government? Who eats then? How many people would die before someone took sufficient control?

Is there any country which has worked its way out of a similar situation? Is there any model for how to break the cycle of dependence on extra-national aid?

thezenhaitian said...

Yes. Kick them out if they are not a real charity. That's preferable to the intolerable situation in Haiti now. False charity never "saved" anyone. It only perpetuates debt and dependency.

Haiti needs to collect back the money stolen or extorted from its coffers by the international community, particularly France and the U.S. And use that money to invest in self-sustaining projects that benefit the rural population and promotes Haiti's development and autonomy.

There is a model of building self-sustaining community development in the work of Frére Armand and the community of Pandiassou in Haiti.

James said...

It's very difficult to profit from the work Fonkoze is doing. Just take a look at their financial statements! They're definitely not making money.

If Haiti became a thriving economy tomorrow, loans would be riskier and they could be larger which would be very good for Fonkoze and all microfinance institutions. They certainly wouldn't go out of business.

You're really drawing a lot of conclusions in this article without really understanding the model. How is Fonkoze indicative of the abuses of the US government or other institutions? You don't draw the connection.

thezenhaitian said...

"India's Microloans Spur a Rash of Suicides
'This is unrestrained consumer lending gone wild'"

"Suicides in India Revealing How Men Made a Mess of Microcredit"

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