How microfinance can help Haiti

The recent tragedy in Haiti serves as a stark reminder of just how vulnerable the poor are in the face of emergencies. When crises hit, households often turn to family and friends for help, and the news stories from Haiti are full of inspiring stories of charity.  But the news reports also bring home the fact that in large-scale disasters, like the earthquake in Haiti, it’s hard to rely on acquaintances, neighbors, friends, and family members.  No one has much to spare.

There’s hope that microfinance institutions can help provide a path towards recovery and reconstruction, despite the devastation.  

Fonkoze is the largest microfinance institution in Haiti and one of the most admired in the hemisphere. Following the earthquake, the organization’s response was immediate. Within a matter of days, all 41 of its branches in Haiti were operational, providing the opportunity for customers to make withdrawals and receive transfers from friends and family members abroad. Fonkoze also developed a Relief and Rehabilitation Fund, which will be used for a range of purposes including: “providing relief to staff members, opening an emergency operations center, delivering remittances, acquiring equipment and facilities, and assisting clients who have lost their business and homes.”

This is not the first time that Fonkoze has faced disaster. In 2008, four hurricanes wreaked havoc on Haiti’s infrastructure, farmland, schools and hospitals. Land was flooded as a result of the widespread deforestation that has left the country particularly vulnerable to natural disasters. One-third of Fonkoze-financed businesses were destroyed. Subsequently, the organization recapitalized the loans of almost 14,000 borrowers with an extended, one-year repayment period. Donors covered “all interest charges for the affected clients during the first six months, and half the interest charges for the second sixth month period”, but no loan was forgiven. Fonkoze managed to reduce both the negative impact on its portfolio while also serving the interests of its clientele.

Prior to the earthquake, Fonkoze was also close to establishing a catastrophe-directed insurance program. Perhaps one other strategy of securing poor households against risk could combine insurance coverage with savings and loans products. Hopefully, this will allow individuals in Haiti to redirect funds based on needs, and prevent them from slipping further into poverty in the future.