Segen is a market town high in the mountains overlooking Marigo. It sits just below one of Haiti’s national forests, the Parc de la Visite, in the midst of rich farmland. Fonkoze Marigo has two credit centers in Segen. Moïse, a Marigo loan officer, and I were making our second visit to the weaker of the two.

Most of the members of this center have gotten behind in their repayments, some of them substantially. And few of them attend center meetings regularly. Fonkoze has generally found that these two issues are closely tied. Centers with good attendance will usually have good repayment records. Centers with poor attendance will generally have poor repayment records, at least they will eventually.

There were about ten people at today’s meeting. There should have been more than twice that many. Two of them were men, and that deserves some explanation.

Like most institutions with solidarity-group microcredit programs, Fonkoze offers its loans to women exclusively. There are at least three reasons for this. First, Fonkoze seeks to help Haitian families, and the people who take fundamental responsibility for seeing that children are fed and clothed are their mothers. Fathers contribute. In many families, they are the major breadwinners. But it is the mothers who deploy whatever resources are available in a household to care for their families.

Second, many Haitian women – like many women in other countries – are subject to all kinds of abuse because they lack access to independent sources of income. Too many are forced for economic reasons to stay with men who treat them badly. Fonkoze wants to do what it can to enable women to choose the partners as freely as possible.

Third, men don’t pay back loans. It’s a hard truth for a man to read or hear. Or to write, for that matter. But experience has been pretty consistent. Poor women overwhelmingly repay their loans. Men are much less dependable.

So these two men – I’ll call them Jean and Paul – shouldn’t have been at the center meeting. But their stories say a lot about the range of problems that righting the Marigo portfolio will require our team to overcome.

Jean is an older man. When we asked him why he was at the meeting, he said that he had come to represent his two daughters. “When you look at me,” he said, “you should see my two girls, not me.” The girls both have loans, but they live in Pétion-Ville, across the mountain from Segen. They are in school, he said, but have small businesses they run in the mornings. Under the circumstances, they cannot come to center meetings. They come to the center to sign for their loans, but then they send him to make repayments on their behalf. They are on their third or fourth loan, for 15,000 gourds, or about $375. And their repayment record has generally been good.

Until two weeks ago. Jean didn’t come to that regular reimbursement meeting. He thought, he told us, that the meeting was supposed to be a week after the day it was actually scheduled for. But today he had brought a full payment for each of his daughters, two weeks late.

When Moïse told him about the lateness penalty he would have to pay – about 10 gourds, or 25 cents, per day – he was supportive at first. Penalties were, he agreed, a good idea. Too many borrowers were taking their debt too lightly. They come to meetings with their money in their pocket, but then decide not to make a repayment because they’d rather keep the money in their business. He was eloquent.

That is, until Moïse made it clear to Jean that he really planned to collect the penalty that was due. Jean didn’t think he should pay a penalty. It was a mistake. He was misinformed about the repayment date. (The correct date was written in the contract in Jean’s family’s hands.) He didn’t know about the penalty policy. (He admitted that he knew the policy existed, but argued that it hadn’t been applied. Several women in the center answered that they had paid penalties in the center before.)

He said he wouldn’t pay at all if Moïse insisted on the penalty. (Moïse pointed out that, unfortunately, the penalties would just keep accumulating.) He asked me to intervene on his behalf, explaining the leading role he had always tried to play in the center. (Moïse and I told him that we were in total agreement about penalties.)

He said he didn’t have any more money with him. (Moïse said that he could bring it to a meeting of the neighboring center in two days. The additional penalty wouldn’t be too much.) But then he angrily pulled the money out of his pocket and paid. No too long after that, he left the meeting.

This won’t be the end of our problem with Jean because I also had to take a few minutes to make sure he understood that we would no longer accept the role he was playing on his daughters’ behalf. If they are to have Fonkoze loans, then they must come to Fonkoze meetings. They can’t send their father. They have to attend themselves.

He answered that they couldn’t. They could not miss school in Pétion-Ville just to come to their center. I suggested that they take their next loans from the branch in Port au Prince. It has credit centers in Pétion-Ville. He answered that that wouldn’t work either because they come home for vacations.

The reality probably is that his daughters have no businesses. The reality probably is Jean has a business that is built on taken Fonkoze loans, two at a time, in his daughters’ names.

Such deceptions are tempting because Fonkoze won’t make loans to men. It would be easy to pull it off in Marigo because loan officers have not routinely visited our members’ businesses here.

This is an important point. A couple of different factors are supposed to go into analyzing a member’s loan request. You consider their repayment record, their attendance at center meetings, and the size and nature of their business. This third factor is crucial. A woman who can comfortably repay an 8000-gourd loan may not have enough of a business to pay back a loan twice as large. By letting her increase her loan size without analyzing her business with her, you are almost ensuring her delinquency. Either she will buy more merchandise than she can sell and have money frozen as inventory, or she will spend the part of the loan that she can’t use in her business on consumption. In either case, repayment is going to be very hard.

I’ve already written of the branch’s lack of attention to attendance. But the lack of attention to our members’ businesses has been just as damaging. Loan sizes spiraled upward until a large numbers of them were bigger than what borrowers could repay.

Another consequence of this inattentiveness is that we have no way to know whether Jean’s daughters really have businesses. We’ve never seen them. My guess is that they don’t. The credit center’s women were too quick to suggest that he ask his wife to take out the loans for them instead. As though it didn’t really matter whose name would be on the contract. He was too quick to insist that they can take their loans in Pétion-Ville. Of course, I could be wrong.

Paul’s story is, in some ways, harder to deal with. It’s much sadder. His wife gave birth to a son in January. It didn’t go well, but now mother and son are doing well. She’s not ready to leave the boy at home, and doesn’t want to bring him to the meetings. So Paul has been coming to the center in her place. He’s been making repayments on her loan as well. They work together. Though the business and the credit that feeds it are nominally and normally her responsibility, he’s been running it while she cares for their son.

In January, things got much harder. She was about eight months pregnant when she got her most recent loan. Under the circumstances, she probably shouldn’t have been given a loan at all. Paul had to take the money for her and go to Port au Prince. He did their buying. When he was ready to bring their merchandise back to Marigo, robbers took every bit of it.

He and his wife made the first three repayments on their loan anyway. They squeezed them out of what was left of their business. But that business doesn’t exist right now because they’ve run out of merchandise and have nothing to buy new merchandise with. In former times, Paul would have sold a couple of goats or a cow to straighten things out. He’s had to put money into his wife’s business to help her out before. That’s part of working with her. This time, he can’t. The hurricanes last year eliminated their livestock and, for that matter, their crops. They were forced to depend on their business entirely. Now he doesn’t know what he will do. He was in tears as he and I talked after the meeting.

Righting the ship here in Marigo will require more than just managing things more carefully or more energetically than they were managed in the past. It would be a mistake to believe that I can just come in and fix things by helping the staff do things more correctly. Many of the problems here in Marigo, like the problem Paul and his wife are facing, are real.

Haitians don’t tend to speak of weeks. Where Americans might say “See you in a week,” or “I’ll be away for two weeks,” Haitians are much more likely to give the number of days. What is interesting for an American is that Haitians do not speak of seven or fourteen days, but of eight or fifteen. Since it’s Monday as I begin to write this, next Monday is eight days away.

I mention this because of the safe.

Fonkoze branches have to stay liquid, and as hard as transportation can be in some parts of Haiti, that means keeping a fair amount of cash on hand. That cash goes in a safe, which is secured behind various locked doors. The keys to those doors are distributed among a specific set of people. So getting to the cash always requires more than one person. The safe itself requires both a combination and a key. The tellers keep the key. As the branch’s manager, I’m the only one on-site who knows the combination.

It’s a standard type of combination. You turn the dial a certain number of times one way and stop at a number. Then you turn it a couple of times in the other direction and stop somewhere else. After you’ve gone back and forth the right number of times and stopped in the right places, you can open the safe with its key.

So I had to learn the combination. My supervisor, Domerson, wrote it down for me, and told me to memorize the sequence and destroy the note. And then he went off to Port au Prince, leaving me in charge.

The problem arose when it was time for me to open the safe the next day. I had his instructions. But what did “turn the dial x times to the right and stop at y” mean? How was I to count the x times? What constituted once around? It wasn’t at all clear. I tried working the combination several different ways, and none seemed to work.

After each failure, Béatrice, the teller who’d try the key, would sing, “dezole.” Roughly translated, that means “sorry” or “too bad.” But a more precise translation would be the noise a game-show buzzer makes after a contestant’s wrong answer.

I tried to call Domerson a couple of times. When I finally got through, and he was done laughing, he was able to talk me through the process. But I learned that Haitians count the rotations of a combination lock the same way they count the days of the week.

The easiest aspects of learning my new job are minor struggles like figuring out how to use a safe, learning to distinguish the office’s many keys, and adapting myself to the electronic and manual systems we use to keep track of the transactions we handle every day.

But the real issues involve straightening out problems in the office’s loan portfolio. For an institution like Fonkoze, which does almost all of its lending to solidarity groups that meet in credit centers, straightening out the portfolio means straightening out its credit centers.

And straightening out the centers means, first and foremost, helping the centers’ members, who are Fonkoze’s borrowers, understand what we can offer them and what we have to expect.

It also means helping them understand that expectations are, well, expectations. Fonkoze borrowers in the Marigo area, for example, have been told, quite consistently, that they must come to credit center meetings. But since there have been no consequences for those who don’t attend, members have come to believe we don’t mean it. And so attendance in the centers I have visited so far has been poor. They have been told, over and over, that we expect timely repayment. But since lateness charges have not been regularly applied, they have come to believe we don’t mean it. And so the delinquency rate has been rising steadily.

The most important responsibility I’ve taken on at the branch, then, is to work with the staff to get our message out, in word and deed, as convincingly as we can.

On Wednesday, that job brought me to Djomond, a small seaside village about halfway from Marigo to Belans, the next larger town on the coast to the east. Djomond is home to a midsize credit center. The problem is that the road from Marigo to Belans winds up into the mountains above Marigo before it descends back to the coast. There is no coastal road. Not even a motorcycle path. The only way to get from Marigo to Djomond is on foot. It’s about a two-hour walk.

That’s a problem. Not because two hours is too far for a healthy credit agent, or branch manager, to walk. Fonkoze is committed to reaching out-of-the-way parts of Haiti. The problem is that the Marigo branch is too small to have extended itself that far just yet. Extending the branch’s reach properly would have meant penetrating the areas closest to the branch first, and then gradually moving outward.

But that’s not what the branch’s staff did. Feeling pressure to grow the portfolio as quickly as possible, credit agents sped from one village to another, signing up the 25-40 women who were most anxious to join Fonkoze, the ones who took the least convincing. As a consequence, the Marigo portfolio is thinly spread across a broad geographic region. The credit agents have to travel to different villages almost every day. And so they have little time to follow-up with members. They don’t have the chance to visit their businesses. If they don’t see them in the centers, they are unlikely to see them at all.

The consequences are easy to predict. When I got to Djomond, I found less than half of the members at the center meeting. The center’s elected chief, the borrower with the main responsibility for running the meeting and managing the members’ relations with Fonkoze, wasn’t around. And her fellow members couldn’t even say why or where she was. The members who came to the meeting brought only a portion of the reimbursement money that was due. I ended up collecting only about 9000 of the 69,000 gourds that were due.

I started to call the members forward group by group. Fonkoze credit centers are not collections of individuals, but collections of five-member groups. Women join together with close friends, other women they know well enough to vouch for. They serve as guarantors for one another’s loans. They help each other out in a pinch.

But the Djomond center is not really a center right now, and its groups don’t really function as groups. Only one member of the first group I called was present. She seemed surprised when I asked her why the other members of her group weren’t there. She started to make her repayment, and that’s when things got exciting.

She had been a little short on her repayment two weeks earlier, a matter of 56 gourds on a repayment of about 1300. The reason she had been short was that those 1300 gourds were already two weeks late at the time, and she had paid them on the day after I told the credit agents that they had to start collecting penalties on late payments. She had paid the charge, but that left her short. Normally, Fonkoze would expect that she would turn to the other members of her group for help. Since her group was and still is dysfunctional, she had nowhere to turn. So she had had to leave the meeting with a balance.

She had brought those 56 gourds to the meeting I attended, and her new reimbursement as well, but the 56 gourds was late. So I told her she would have to pay another 120-gourd lateness penalty.

She was not happy, and I could understand why. She couldn’t imagine that I would collect a penalty that was more than twice her overdue balance. The credit agent who had been working in the center hadn’t previously been collecting penalties at all. She could understand when he had told her that she would have to pay a penalty on a whole reimbursement payment that was two weeks late. He had just explained that his new boss – namely, me – had insisted that he start enforcing the rules rigorously. But paying a penalty again on the very small balance that remained seemed too much, and she argued with me about it for over twenty minutes.

But I insisted. The center will never pull itself together unless its members organize themselves to get things under control and learn respect for the rules that make microcredit work. Fonkoze can not lend to women unless their repayments are pretty regular. The standard on-time reimbursement rate for microcredit is about 97%, and Fonkoze had several branches at which it is 99% or better. I collected the penalty on her trivial balance because the women must learn to understand that repaying their loans on time is a priority.

And that’s when something interesting happened. Paying her 56-gourd balance along with her 120-penalty left her short once again on her reimbursement. She had come with a little more cash than she thought she needed, but turned out to have about seventy gourds too few. Threatened with the clear prospect of another penalty in two weeks, she turned to a couple of the other women in her center and borrowed money she needed. She would pay them back, and avoid the penalty.

That’s just how things are supposed to work: Businesswomen working in solidarity with one another. And that’s something sadly lacking in the Marigo centers. Helping them learn to work with one another might go a long way towards righting their solidarity groups and credit centers. And it might be one key to healing what ails the portfolio itself.

Kòray is an area covered by mountainous woods that overlook the coastal town of Belans. It’s also the home of the most distant of the credit centers that Fonkoze’s Marigo office serves. A two-hour motorcycle trip takes you to the entrance to Belans, and then you turn uphill for another hard 45-minute ride. The center in Kòray has 64 members, divided into thirteen solidarity groups.

In one respect, it is one of the better-functioning credit centers that we work with: Though there are some delinquent loans, none is yet so far gone that it must be written off. We’d like to be optimistic about this center. It was founded when members of the community came all the way into Marigo to request that we bring credit to their neighborhood, and it’s hard to imagine what alternative borrowers in Kòray have to Fonkoze. Though there is a small savings and loan association down in Belans, such associations do not deliver loans to their borrowers’ doorsteps the way that Fonkoze does, and Belans is a long, steep, difficult hike from Kòray.

But there are problems with the way the center is functioning, and they are similar to the ones that are everywhere in the Marigo branch. Borrowers are irregular about coming to meetings. The meetings are held twice each month. At one, a borrower will pay her monthly installment on her loan. At the other, there is a discussion of issues related to their loans, their businesses, their community, or generally their lives.

Fonkoze requires attendance at both meetings. In a country where all forms of communication at a distance are unreliable, it is essential that we regularly see all our borrowers face-to-face. What’s more, doing banking transactions in a center meeting if front of all a center’s members is a key piece of ensuring the transparency of the process. All exchanges of money take place in front of multiple witnesses. Finally, and perhaps most importantly, collecting repayments in the center gives members the chance to ask for and receive each other’s help. A member who is short can go to other members for a loan to complete her repayment and, so, avoid a lateness penalty.

But many of the borrowers in Kòray, like those elsewhere, have settled into the belief that the meetings are optional. If they are not receiving a loan and they have no repayment to make, they don’t come. Even if they do have a repayment, they might decide to send the money with someone else.

This is neither dishonesty nor laziness. It’s not that they are failing to live up to their agreements in any blameworthy sense. It is, rather, their sound business sense, shrewd and hard, looking at the immediate consequences of various ways they could choose to manage their affairs. These women make the money that feeds their children by taking to the street, buying and selling sugar or shampoo or cabbage or sandals or charcoal or perfume: whatever it is they each deal in. Many of the women at a center like the one in Kòray are only intermittently even at home. Their businesses have them traveling between Kòray and Port au Prince, and they might spend more time in the capital than in the place where they nominally reside.

Though we at Fonkoze know that, over the long haul, regular attendance at meetings is better for all of them if it ensures that their center is strong, it can hardly seem that way to them. At least at first. Leaving their business twice a month must initially seem like a loss. They might eventually come to understand the value of the meetings. Many Fonkoze members, in fact, do. But it’s a recognition that can take a long time. Meanwhile, it makes perfect sense for them to stay with their businesses as much as they can.

And there is nothing merely officious about insisting on center attendance. Fonkoze has a lot of experience that shows that even centers where members are regular about their repayments quickly degenerate if attendance is poor. Microcredit lives or dies with the discipline of the process, so the key to saving centers like the one in Kòray will be reintroducing the discipline that should already have been there.

The Marigo staff is to blame for way that things have degenerated. Though there has never been a lack of talk about the importance of meetings, it has remained just talk. Haitians have a proverb, “//Tande ak wè se de//.” That means that hearing and seeing are two different things. Fonkoze’s Marigo’s members have heard Fonkoze expectation, but they have not seen it at work. Credit agents and branch leadership have done nothing to show that the expectation is real except say it loudly, sometimes even angrily. Members understandably ignore such talk as long as it is only talk.

So my work with this center began last week when I was studying a request for new credit by three of the solidarity groups that had finished repaying their loans. The members were requesting between 10,000 and 12,000 gourds – that’s about $250 to $300 – after having repaid loans of about half that much or less.

The first things I looked at were their repayment records and the center’s attendance book. I saw two things. First, though they had repaid their loans fully, they had been late with some payments along the way. They hadn’t been able to keep to the strict repayment calendar they had agreed to. Second, most of them were very irregular about their attendance, having missed half or more than half of the meetings that fell during their repayment period. So rather than approving loans of 10,000 to 12,000 gourds, I approved loans of 3000 to 6000 instead. Borrowers with the worst attendance records got loans of only 3000 or 4000 gourds. Members will begin to see that required attendance is really required.

The second step we took involved the way we would disburse the new loans. The total disbursement would amount to something around 60,000 gourds. But the credit agent brought much less than that sum to Kòray. He was scheduled to collect over 45,000 gourds in repayments from other center members, so he brought only 15,000 gourds. We would only be able to make a new disbursement if scheduled repayments came in.

When we got to the center, we found only about 20 members. Those in attendance had some information about those who weren’t there, but of others they said they just didn’t know. Some of the absent were, we were told, in Port au Prince. They hadn’t been able to leave their businesses to come to the meeting. Others were at home. One, for example, was busy doing laundry. Another had a sick relative.

I hate to preach to the converted. The members in the center were, of course, the ones that had come. But I had to talk to them. Only they would be able to help me get out the word. So I told them that Fonkoze would cut the loan amount of members with poor attendance, and eventually cut of their credit entirely. The reduced loan amounts I had approved for the credit we were scheduled to disburse that day would be proof that I was not making an idle threat. In fact, the repayment we were scheduled to receive was short, so we weren’t able to make any new loans.

These strategies must be applied with care. The most important motivation for repayment that Fonkoze borrowers have is the prospect of getting new and larger loans. If they start to believe that they will be blocked by problems they cannot control – like difficulties that might interfere with their coming to meetings or problems that other members have repaying their loans – they could choose non-repayment as a way to ensure that their businesses don’t get too short on cash. We could end up making loan repayment worse than it already is.

But we have to take this risk. The branch cannot continue as it has been functioning up to now.

March 25 2009

Marigot is a coastal town in southeastern Haiti. It’s located about a quarter of the way from Jacmel, Haiti’s main city in the southeast, to Anse à Pitre, at the Dominican border.

There is a good road from Jacmel to Marigot, at least for now. In places it runs especially close to the water, and it looks as though a little more erosion would be enough to cut the road in two. East of Marigot, the coastal road is impassible to motorized vehicles. They have to make a long, steep, winding climb into and through the mountains. So Marigot is an important little port for commercial traffic between Jacmel and the DR. The fish market at Marigot’s wharf supplies restaurants, hotels, and private residences in Jacmel and even Port au Prince.

Fonkoze’s office in Marigot opened early in 2006 with great promise. It quickly grew to be one of the larger branches in the system. Fonkoze now has forty branches offices, spread across all parts of Haiti, a country about the size of Maryland, but that does not nearly represent how broadly it spreads out its services. Motorcycle-riding credit agents travel two hours or more along the dirt paths that crisscross the Haitian countryside, bringing credit to the people who need it most. The Marigot office’s agents reach groups of borrowers all the way from Cayes Jacmel, a small town on the coast right outside of Jacmel, to la Visite, a pine forest in Haiti’s highest mountains, almost halfway back through the hills to my home outside of Pétion-Ville, to the high farmland overlooking Belle Anse, a isolated sea-side town well east of Marigot.

The problem is that management of the credit the Marigot office provides has been poor.

It’s not from lack of trying. Credit agents are in the field, wearing themselves out almost every day. But their results have not been good. Though the portfolio has grown quickly, it is of poor quality. The loan delinquency rate, typically 2%-3% in microfinance, has been several times higher.

This creates two very serious problems. On one hand, Fonkoze’s main source of income is the interest that its borrowers pay, and without that income the Marigot branch is drifting farther and farther from the minimal level of profitability that is necessary for it to sustain itself. Though Fonkoze’s goal is not to make bundles of money for investors, it must eventually turn a small profit just to keep itself alive.

On the other hand, Fonkoze, like other financial institutions around the world, is struggling to find sources of loan capital. Not only is its ability to borrow hurt when potential lenders see a repayment rate like that of the Marigot office, but that fact that lent money isn’t coming back in means such loan capital as Fonkoze has is slipping out of circulation.

So we must start collecting the loans we’ve made. But to do so requires, at a minimum, that we understand why the usually effective approach to credit that Fonkoze uses is failing here in Marigot. An obvious answer presents itself. But it requires some explanation.

Fonkoze’s approach to credit is called “solidarity-group” microcredit. It’s designed for making loans to the poor, who have neither assets they can easily offer as collateral nor cosigners with salaries who can guarantee their loans. The idea is that, instead of their taking out individual loans that would thus be without any backing, they take out loans in groups of five, in which each woman has four others who vouch for her.

This approach depends fundamentally on disciplined solidarity. This means, first of all, that women attend required meetings twice each month. At one of those meetings, they make their repayment. At the other, they discuss issues important to them all. These bi-monthly meetings ensure that Fonkoze can stay in contact with all of its borrowers and that the borrowers – who are, after all, guaranteeing one another’s loans – can stay in contact as well.

It means, second of all, that Fonkoze must pay close attention to its members – to their loan amounts and to the investments they make with their loans – and that the borrowers must pay close attention to one another. Fonkoze borrowers are poor. They have lots of real needs in front of them all the time. The temptation, even the need, to spend their loan capital on food or on their children’s education or on other household expenses is enormous. But if they do anything with their loan capital except invest it in their businesses, they are almost certain to fail to repay their loan and, more importantly, lose the one sustainable source of income they have.

Such discipline has been sorely lacking in Marigot. Its borrowers show very little sign that they feel they are expected to come to meetings. The attendance sheets credit agents keep tell a depressing story. What’s worse: when you ask those who do come to meetings where the absent members are, they often say they don’t know. They behave as though they are surprised that they are even asked. An am-I-my-sister’s-keeper mentality pervades.

And the lack of discipline doesn’t start with the borrowers. It starts with the staff. They’ve been taking short cuts they’re not supposed to take, and they’ve shown flexibility beyond what they are authorized to show. They sometimes fail, for example, to completely fill out the all forms related to the loans they are managing. And lest the reproach sound like silly bureaucracy at work: The reality is that without the completely filled-out forms, our office can not accurately track either the borrowers’ eligibility for credit or the loans themselves.

Or they might approve a loan for a member without verifying that she has a business to invest in. Women are sometimes sent by their husbands to apply for credit because men are not eligible for Fonkoze loans. A mother will send her daughters so that she can stay by her business while her daughter attends meetings and is nominally responsible for the loans. Or a woman without a business may ask for Fonkoze credit as a way to keep cash in her household between regular or irregular remittances from someone abroad. None of these instances work well for Fonkoze, because we lack contact with the person actually responsible for the money.

Just yesterday, I visited credit center west of Marigot where all but one of the members has been repaying well. The one, however, has yet to make a single repayment for the loan she took out in December. The other women in the center were worried, because her delinquency could lead to delays in their getting their own new loans. They were mad at Fonkoze because we were taking no severe action against the late payer. If we put her in prison, they said, her family would find a way. I asked them to take me to see the woman, and they readily agreed.

It turns out that she has never run a business in her life. Her husband always took the loan money and used it to make their money. For two loan cycles, he gave her the money to make repayments roughly on time. But she said he lost the money he took from her last loan. He then had gone to the Dominican Republic to work to make it back. Neither she nor her four small children have heard from him in the months since he left.

So we sat trying to figure how we could works towards repayment. It turned out that she had some money in her savings account. She said that if I let her withdraw it she would use it to make money to start paying us back. I knew she would have 15% of the amount of her last loan. That much is required as loan collateral, s she wouldn’t be able to withdraw it. But it turned out that she had 1100 gourds more than that.

But I told her that there was a problem: She already held over 10,000 gourds that she wasn’t repaying, and had already admitted that she had no experience whatsoever in business. If I were to release another thousand, how was I to know whether I’d see any of that money again?

That’s where group solidarity came in. I offered her the following proposition: She would be able to withdraw 1000 gourds to start her business, but she had to do it in the presence of the elected chief of her credit center and had to agree to let fellow credit center members supervise her business. The center chief liked the idea, as did the rest of the group. The woman herself seemed nervous, but she agreed. Several of the members started planning with her what she could do with the money. The consensus was for her to start with a small roadside grilled corn-on-the-cob business. One woman offered to lend her a grill, another to go with her to buy the corn and the charcoal. It seems like a worthwhile experiment for Fonkoze.

Credit agents sometimes, to take another example, rescind penalties for late payment even though they are not authorized to do so. This latter point has been especially important in Marigot. A few words about the way Fonkoze loan repayments are calculated can explain why.

Fonkoze’s repayment calculations are simple. We figure out the interest payment that a member will owe assuming that she repays on time. That’s where her interest payment stays. Our information system doesn’t allow us to recalculate interest payments on the fly for late repayments. It would be too complicated. That’s where lateness penalties come in. A borrower owes ten gourds – about a quarter – for each day her repayment is late.

If a borrower comes to see that she’ll not need to pay that penalty, the motivation she would otherwise have encouraging her on-time repayment reverses. Though she knows that won’t receive a new loan until her current one is fully repaid, she is better off keeping as much of the money in her hands as she can until the day she’s ready to complete her repayment and take a new loan.

And this is not a small matter. Many of our members depend heavily – too heavily – on our loans to keep their businesses afloat, and they may have nothing but their businesses with which to finance their families’ daily expenses. So if they know that they can delay repayment without there being serious consequences, they are very likely to do so. I can’t blame them.

It must all change.

So the branch’s assistant director and I have been traveling to credit centers with credit agents, giving a kind of there’s-a-new-sheriff-in-town speech. No doubt the women have heard such talk before, but if the start to see that we mean what we say, some of the problems we have with delinquent loans should improve. Not all, but some.

20 March 2009

Haitians are terrible with money. I mean this in the most literal, least interesting sense.

It’s not that they are especially worse than others are at managing their money. Or at least I should admit that I’m unqualified to make that judgment. Fonkoze might have years of experience of market women who have too little control of their income and expenses to know even whether they are making or losing money, but in a country in which over 50% of the population is somehow living, and not simply dying, on less than $1 per day, it would be rash to assert that people don’t know how to deploy their very limited resources.

When I say that Haitians are bad with money, I mean only that they badly mistreat the bills they use to buy and sell. Wallets are not in common usage. People are much more likely to shove money into their pockets or bags in any old way. The bills get crumpled and twisted. They end up getting terribly worn.

As I began the training I would need to become one of Fonkoze’s branch managers, I learned who pays the price. At the end of my first day, I was counting the money that was to go into the safe, making sure that the cash matched the transaction record, and I was having a terrible time. Not only were the worn and torn bills insistently sticking to each other, but they were spewing a moldy dust that was making me sneeze and wheeze.

Watching me counting, miscounting, and recounting piles of crumpled bills turned Thomas nostalgic. Thomas is the manager of Fonkoze’s office in Lenbe, home to its Active Learning Center. It’s where I did my first bit of training.

His start in banking was as a teller in a commercial bank, and he remembers the training he received. Each trainee was handed a couple of packets of bills, and they had to count them over and over again in whatever regular or syncopated rhythms that their trainer would call out – one-two-three-four, one-two-one-two – until they could handle packets of a hundred bills quickly and accurately. He spent two days doing little else.

Learning to count piles of money will be a challenge, but it will surely be the least of my problems. My friend Dr. Job has already promised to give me a couple of surgical masks so I can protect my lungs from the moldy dust, and even my fingers are bound to get more nimble eventually.

And though there are a lot of policies and procedures to learn, and some software to master, the part of my work that will essentially be a desk job isn’t what worries me either.

I anticipate two real challenges. One is that I’ll need to develop and strengthen a staff that has been functioning poorly until now. The second is that I will need to get into the field, and help the Marigo credit team improve the branch’s loan portfolio. Success at the second will depend on success at the first.

The loan portfolio at the Marigo office is not in good shape. On one hand, loan delinquency is relatively high. On the other, borrowers leave the program too quickly.

Each is a serious problem because each interferes directly with Fonkoze’s core objective, which is to help Haitian families lift themselves out of poverty. Real progress for the families of Fonkoze borrowers is a long process. It probably takes five years at least for even a moderately poor family to establish a stable and sufficient livelihood using Fonkoze loans. Slow repayment can only make that journey longer. And stepping out of the credit program is, for most borrowers, a dead end.

But these problems don’t just interfere with the institution’s effectiveness. They threaten its existence as well. Though Fonkoze was not established to make piles of money for investors, its profitability is important as a sustainability strategy. Profitability is not, for Fonkoze, and end in itself, but is an important means to an end. Unless its branches can generate the income they need to support themselves, their operations will always be at the mercy of our luck with donors. And few donors will want to give money to a cause that has no hope of ever carrying its own weight.

And for most Fonkoze branch offices, especially those that are, like the Marigo office, outside of Haiti’s major cities, profitability depends almost entirely on the income from loans. Since initial expenses with new borrowers mean that Fonkoze does not break even until a borrower’s third loan, high borrower turnover makes lending a losing proposition.

The only way for me to address these issues is for me to invest almost all my time into working directly with the credit agents who’ve been making Marigo’s non-performing loans and the borrowers who are saddled with them. We need to work together to figure out why the system isn’t working for them what we can do to repair whatever damage has been done so that we can move forward. At the same time, I will need to pay close attention to new loans that the office makes to ensure that they have the best possible chance of helping the borrowers who take them and, therefore, Fonkoze itself.

This will mean getting onto the back of a motorcycle almost every day to accompany a credit agent into the field. The Marigo office serves a broad and varied swath of the Haitian southeast, from the mountains that rise into one of Haiti’s surviving pine forests above Seguin to the coastal city of Belle Anse, halfway between Jacmel and the Dominican border, and much of its territory was ravaged by the hurricanes that hit Haiti last year.

And it will mean convincing credit agents and the borrowers they work with of the merits of doing things the right way. Credit agents and borrowers alike need to commit themselves to build lively and active credit centers by participating in regular meetings, discussing relevant issues vigorously and openly, and addressing problems together. They need to pay close attention to loan sizes, ensuring that loans match the real capacity of a borrower’s business, rather than her ambition and the maximums established by Fonkoze.

It also means making sure that everyone involved has a sober understanding of the state of things for Fonkoze in Marigo, a clear sense of the role they’ve played in letting things degenerate as they have and the role they can play in turning things around, and a well-grounded feeling of cautious optimism as to what we can achieve as we move forward together.

These feel like platitudes as I prepare to settle in. Achieving anything will take a level of collaboration with a frustrated team that is daunting for someone still very much a foreigner in this country. Such hope as I can muster is rooted in the encouragement I’ve been getting from the first-rate colleagues I’ve had the chance to work with at Fonkoze over the last four years. It all starts in less than two weeks.

I’ve been back in Haiti for just over a month, and I can’t really say that I’ve settled into any particular focus. I’ve made a couple of trips into the field for Fonkoze, attended a conference of the leading Haitian practitioners of Reflection Circles, participated in a few meetings with the guys in Cité Soleil, and made lemon batteries — actually, we used sour oranges — with students and teachers at the Matènwa Community Learning Center. And I’ve spent a lot of time talking with friends, neighbors, and colleagues, trying to get a sense of the lay of the land.

My sense is this: Things are worse than they were just a few months ago.

It’s not surprising. Food prices were already increasing rapidly before hurricanes swept through Haiti in August and September. Lives and homes were lost, and the crop losses they occasioned did double harm, even in my home community of Kaglo, where the damage was less dramatic and the people are a little better off than in most areas of the country. On one hand, a harvest that would normally supply much of the food my neighbors consume disappeared. They now must buy everything that they eat. On the other, they have less money to purchase food with because their crops are also an important source of income. And this came, as I said, as food prices climbed especially high.

I had a long talk with a young friend the other night. He’s an 18-year-old 7th-grader who attends a small private school down in Pétion-Ville. He hikes down the hill each morning with his best friend, and back up under the searing afternoon sun. It takes about an hour to go down the hill, but much longer to return. He gets a cup of coffee at most before he leaves, and these days he never knows whether food will be waiting for him when he gets home.

His father is a mason who hasn’t worked since October. His mother is a market woman. She normally sells their agricultural production, but it was wiped out by the hurricanes. They have seven of their children on their hands, and cannot provide even one substantial meal every day. That’s the simple reality. And the family is by no means one that you would normally identify as among the poorest of the poor. They have a well-built house, substantial farmland, some livestock, and five family members who at various times earn income of different sorts. But right now, there are days when they have no money for food.

So while my friend goes to school — he has an older friend who pays his way — most of his siblings don’t right now. Paying school expenses must seem hard to justify when you can’t put meals on the table.

Stories like his, and the economic situation in Haiti generally have pushed me to consider my role. I have spent a lot of time working with teachers at various levels in the hope that together we can improve, maybe even transform, certain aspects of the education they offer. I work with community organizations to help them learn about themselves and their situations in the hope that better self-knowledge can guide the decisions they make to change their world.

I learn a lot in these collaborations, and I think they do some good. But evidence of the urgency of the current economic situation is everywhere around me. I am increasingly convinced that education can only be transformed and transforming if the families and communities that it happens in can make themselves less poor. Education is surely not just for the rich. But it’s not for the extremely poor, either. Minimum standards of nutrition, for example, probably must come first. So I began to ask myself whether there was more I could do towards the economic side of community development in Haiti.

Even as I’ve had these thoughts, I realize that I’ve been working closely for four years with an organization and an approach that aims directly at helping Haitian families lift themselves out of poverty. It’s Fonkoze, Haiti’s largest microfinance institution. I began helping out with an interesting assignment that had me tinkering with its excellent literacy program, but have been involved in more and more aspects of the organization as the years have passed.

So my sense has been over the last weeks that Fonkoze should have an increasingly important place in my working life, at least insofar as its needs correspond with a contribution I can make.

These have been hard days for Fonkoze. As the economic situation in Haiti has deteriorated, borrowers are having a harder time repaying their loans. They’re also less able to make the savings deposits that are Fonkoze’s least expensive and most sustainable source of loan capital. Their businesses are providing less income, and their household expenses are increasing.

In all but the best-managed Fonkoze branches, this has led to decreased repayments rates. Repayment rates for microcredit are traditionally very high. They hover around between 97% and 99%, and Fonkoze has been right up there. But except for a few very well managed branches, where it is 100%, it is much lower now.

The problem is that Fonkoze does not know exactly what goes into good branch management. Fonkoze has a handful of excellent branch directors, but does not know how to reliably produce more.

So management and I have decided that I will take over one of the branches as its director. My goal is two-fold: to make the branch I am assigned a high-functioning one – to help its staff turn it around – and to learn as much as I can about what good management requires. I hope that will help Fonkoze develop more good managers in the years to come.

It is a strange departure for me. Though my work with Fonkoze has gradually brought me closer to the financial side of the operation, it is still very far from what I feel I know. In addition, the closest I have come to running an organization was my turn as dean of Shimer College. I mainly used what I would call the “I’ll-do-it-my-own-damn-self” approach to management, and it was ineffective for Shimer. It would be disastrous for Fonkoze. I’ll have to learn to be in charge, and do it in a culture that is still in many ways foreign to me.

But I feel as though I have very little choice. If I can play even a small role in Fonkoze’s effort to strengthen itself for the fight against poverty, that is an opportunity too important to pass up.