How microfinance can help make Haiti more resilient

Haiti, one of the world’s poorest countries, is highly susceptible to natural disaster. Could a new banking model help build 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 in 2016. 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 was 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, but many of whom are not equipped with the tools and know-how to properly manage their resources. With estimates that US$28t 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.