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