A Second Chance

Fonkoze offers two types of solidarity-group credit for two different types of borrowers. “Solidarity-group” credit is an umbrella term for one way that microcredit is typically offered. Women organize themselves into groups of five to take and repay their loans together.

Fonkoze’s standard solidarity group loans are the ones in the hands of the vast majority of our borrowers. The standard program starts with a three-month loan of 3000 gourdes: about $71 at the current exchange rate. Subsequent loans are for six months. Borrowers meet twice each moth with their credit agents, once for a reimbursement, and once for a discussion. Loan amounts can increase every six months, sometimes rapidly, up to almost $1200. Members can then graduate to taking individual loans.

But it turns out that a loan of 3000 gourds is not for everybody. For some, these loans are too much. Their businesses might not be ready for a 3000-gourd investment. The 250-gourd membership fee can be more than they are ready to pay. They might not have the 450 gourds they need to deposit in their savings account as a 15% collateral.

Fonkoze discovered several years ago that it was not succeeding in reaching the poorest Haitians. The 3000-gourd minimum loan was just too large. So Fonkoze created, among other things, a special loan program called “Tikredi,” or “Little Credit,” designed to reach families who would not succeed without a lower starting loan amount and some extra support.

Tikredi loans start at only 1000 gourds. Borrowers pay no membership fee, and can start with only 25 gourds of savings. Over the course of six intense months, they take three progressively larger loans. The last is for 2500 gourds. They also save towards the 700 gourds that paying their membership fee and building their collateral requires. During these six months, they meet weekly with specially-trained credit agents, more than twice as often as regular borrowers meet with their agents. The agents offer educational programs designed just for Tikredi that emphasize basic business skills, health issues, and a range of other fundamental life skills. Fonkoze has also created a book full of business models that require 1000 gourds or less. So even those who have never had a business before can receive the coaching they need to get started. After six months, Tikredi borrowers graduate to standard loans, beginning at 3000 gourds, and then move upward just like other borrowers.

I wish I could say that Fonkoze had discovered the need for Tikredi through foresight, but it was much more a result of experience. Fonkoze learned by research in the field that it was not reaching poorer borrowers and, what’s worse, it learned the lesson in part through some borrowers’ failure in programs that they were too poor to succeed in.

That is to say: When Fonkoze looked closely at those who failed at standard solidarity-group microcredit, it discovered that some of them failed because they were too poor. They did not have the financial or social resources to benefit from a 3000 gourd loan, but they took those loans anyway because Fonkoze had nothing else to offer and had no way of predicting accurately whether they were likely to succeed. They may have repaid a first or even a second loan. In some cases, their third loan was for considerably more, as much as 12,000 to 15,000 gourds. But this progress was a house of cards, ready to collapse at the first shock.

We have any number of such cases in Marigo. Magressa is an example. She was a member of our center in Desplanti, a center that probably deserves an explanation all its own. By her fifth loan, she was borrowing 15,000 gourds. But at that point, her son became ill, one of the eight children she was supporting with her commerce. Not only did expenses connected with his illness prevent her from repaying her loan, they ate up the capital in her business as well.

In March 2008, Fonkoze’s experiment in restructuring old loans reached her. Her large overdue balance was transferred to a new loan with smaller repayments stretched out over a longer period. But this didn’t really help her because her business had gone under. She made some repayments out of irregular remittances that another son sent from the Dominican Republic. But the remittances weren’t enough to get her started again. When the hurricanes came in August of that year, they washed away crops and livestock and damaged her home. Even after that, she continued to make very occasional repayments, but it would not have been enough to prevent her from being written off had a series of clerical errors by the Marigo branch’s management not done that for her.

That’s where things stood for Magressa in September, when Fonkoze’s Tikredi program came to her neighborhood. She had a large and old debt to Fonkoze, well beyond what she could repay, and no active commerce.

One key to any microcredit program is assuring that it’s reaching the right people. Tikredi identifies appropriate borrowers through an involved process called “Participatory Wealth Ranking,” which begins by inviting a neighborhood’s residents to create a list of all local households and to classify them according to their relative wealth. The Tikredi team then visits the households near the economic bottom of the list to better identify just how poor they are. Women in households that meet the criteria for Tikredi are invited to join.

When our office began the Participatory Wealth Ranking process in Magressa’s neighborhood, she showed up near the bottom of the list. Further verification confirmed that she qualified for Tikredi.

But that presented us with a problem. She already had a debt to Fonkoze. Though it should have been written off, it hadn’t been. We could not give her a new loan with one already on the books, and though I could write off her old loan, formally removing that barrier, I was troubled by the precedent that would set. The single factor most important in motivating our members to repay their loans is the knowledge that their further access to credit depends on their repayment record. If word gets out that they can fail to repay and get new loans anyway, that could affect repayment rates that are already fragile in Marigo.

So I called Gauthier for advice. He directs Fonkoze’s programs for poorer members, including Tikredi. He is the stuff that heroes are made of. Gauthier is a Haitian-American who returned to his country because he believed in trying to make it a better place. He joined Fonkoze in 2002 to take over leadership of its program of individual loans for small businesses. He succeeded in expanding the program and making it profitable. But when Fonkoze needed someone to assume leadership of its then-new program for the extremely poor, he was excited by the chance to work with those who needed him most. There’s more I could say about him, explaining why to call him a hero involves no exaggeration at all, but what is most relevant here is that his advice is always willingly given and well-rooted in both a deep understanding of Fonkoze’s mission and his years of experience working with Fonkoze members at every level.

Gauthier immediately knew what to say. On the one hand, as long as someone like Magressa truly qualifies for Tikredi, the fact that she has failed in standard credit should be no barrier. On the contrary, her failure suggests that she was in the wrong credit program to start with. On the other, it would be dangerous to let her feel that she has no responsibility for the debt she incurred. For their own benefit, and not only for Fonkoze’s, our members need to feel their commitment to repayment as something serious.

He proposed that I approve her for Tikredi, but insist that she make a small, weekly payments against her old loan. She would already be making a required 30-gourd deposit each week into a savings account. We would ask her for 50 gourds instead. 20 gourds would go towards her old loan.

The 20-gourd payments wouldn’t get her very far if the goal was to repay the old loan entirely. She owes over 8000 gourds. But they will be significant for her. Our analysis suggests that most Tikredi borrowers don’t really build up their assets during the six-month program. At best, they establish a business that will be ready to grow when they’re ready to take out larger loans. The extra 20 gourds, though it’s less than 50 cents, will make things harder.

So I invited Magressa to my office to meet with me and Moïse, her Tikredi agent. We asked her to show up at 4:00, when Moïse would have returned from a day in the field, and she was waiting in our lobby by 2:00. When he finally came, we talked for almost an hour. We talked about her experience in the Desplanti center, we went through her whole repayment history. Her adult daughter, also a Tikredi borrower was with her, as was her new Tikredi center chief. It’s clear Magressa really wants another chance. And she seems determined to succeed this time. Moïse, and I will be giving her all the extra attention we can spare.

It may be hard for us as well as for Magressa. I’ll have to go to the Desplanti center and explain to its members why a women who has failed to repay her loan has gotten new credit anyway. I’m not sure I know what I want to tell them. I can’t afford to hide what we’re doing, but I need to present things in a way that avoids making defaulting on loans appear to be an attractive alternative. It’s a center that was very troubled, and has just begun to turn itself around. Its progress seems fragile, like all of our progress in Marigo. So this will require some care.

I began to write this piece on Thanksgiving because thinking about Magressa moved me to recognize one thing I have to be thankful for. I work with an organization whose mission and leadership makes it possible for me to take a flexible view of circumstances like Magressa’s. It’s true that the Marigo office needs to be profitable. Modest profitability will enable the office to sustainably reach the many Haitians who need its services.

But for Fonkoze, profitability is never more than a means to an end. What matters is to alleviate poverty as best we can. With a lot of hard work and a certain amount of good luck, Magressa will be able to lift her family out of poverty. We don’t know whether she will succeed, but she very well might. It’s hard, though, to imagine how she could make any progress at all without the second chance that Tikredi is ready to offer her. I’m grateful that I work with an organization willing to give someone like Magressa that second chance.