Fonkoze’s efforts to redefine the way it works with its member-borrowers have been forced by a simple observation: An increasing number of those borrowers are having trouble repaying their loans. Some are falling into delinquency, some so seriously that Fonkoze is forced to consider writing their loans off. That’s bad both for the borrowers and for Fonkoze.
It’s bad for Fonkoze because it damages its financial bottom line. Though profitability is not Fonkoze’s central goal, it is part of its sustainability strategy. The more its work can be financed through the revenue it generates, the more its leadership can focus on just doing that work well, rather than raising money, and the more durable the institution will be over the long haul.
For the borrowers, it threatens a downward economic spiral through which any gains they’ve made as businesswomen could disappear. Women and their families could even end up worse off than they started. Their businesses can evaporate, and they can be left with no way to access the credit they would need to start over again without turning to loan sharks.
And just to be clear: The issue in Haiti is not whether someone might be forced to declare bankruptcy. It’s whether they will have a way to feed their children and themselves.
Finally, the fact that the borrowers in question, as delinquent as they might be, are members of Fonkoze, and not merely its borrowers, means something too. It would be bad enough if Fonkoze were just being forced to write off loans to the women it was founded to serve. But those women belong to Fonkoze as members, not just clients. In fact, it would be more accurate to say that Fonkoze belongs to them. Writing them off has an aspect of self-immolation. Writing them off feels like tearing away a piece of the living fabric that Fonkoze is made of.
So it is imperative that Fonkoze develop an approach that can serve women who are on the verge of failure. Fortunately, a detailed blueprint for such an approach is available.
It should surprise no one that the blue print was developed by the Grameen Bank, in Bangladesh. Grameen is the source of the worldwide microfinance movement. It’s the institution founded by Nobel-prize-winner Muhammad Yunus, and the microfinance support organization that it established in the United States, Grameen USA, is probably Fonkoze’s most important source of technical advice.
About a decade ago, the Grameen Bank was having some of the same problems Fonkoze is having now. Its inflexible approach to lending, which served as a model for Fonkoze’s standard approach, was failing more and more of its borrowers.
Grameen reinvented itself with a strategy that has come to be called “Grameen Two”, and that strategy could serve as a model for the new Fonkoze. Grameen Two loan periods changed from six months to variable. Grameen Two borrowers who fell behind had the option to negotiate extensions. Most importantly, access to Grameen Two credit no longer depended entirely on the performance of the entire five-women solidarity group that a borrower belongs to. Instead, each borrower became eligible for credit as soon as she finished repaying her loan.
For over a month now, Fonkoze has been trying to make its way through the tracks Grameen Two left in the snow, experimenting in a handful of branches with ways to make the credit it offers more adaptable to each particular member-borrower’s needs and abilities. (See: NewStructure). It’s hard work.
And giving Fonkoze’s programs a new form means more than just restructuring delinquent loans. It means offering credit to strong re-payers who would otherwise be blocked. The easy part of doing this is to take women who are up-to-date but who belong to delinquent groups and offering them new credit before their fellow group members are ready. The more difficult piece is finding strong re-payers whose loans have already been written off because their fellow group members have failed to repay.
These women are harder to reach because it’s harder to establish contact with them at all. For understandable reasons, they aren’t that excited about talking with Fonkoze. They feel as though we’ve cut them off. And our information about them can be dated as well.
But we can find them. I was with Naël, a Fonkoze Social Performance Monitor in Marigo as we spoke with several.
“Social Performance Monitor” may be an awkward title, but the function it represents at a Fonkoze branch office is easy to understand and obviously important. The monitors are field researchers. They are the ones who enable Fonkoze to track the impact of programs on its members’ lives. Every time a new group of five women signs up to receive a loan, their loan officer fills out a detailed survey with each woman that allows Fonkoze to evaluate the economic aspects of her family’s quality of life. We learn how many people live in her household, how often they eat and at meat, what kind of house they have, how much land they own: there is a whole array of quality of life indicators we capture. We capture this information for every new borrower in the Fonkoze network.
But in offices where there is a monitor, we are able to do much more. The monitor both verifies the information already taken from 20% of new borrowers, and takes two additional surveys. They then re-do the same three surveys with the same women at the end of every other loan they take, or approximately once a year. Monitors thus provide Fonkoze with good data that closely tracks life improvements for 20% of its members, a large enough sample permit detailed conclusions to be drawn.
Though Fonkoze is only beginning to see the results of this new initiative, the initial data is exciting. Though the sample we are already able to report on is small, the results are clear: After one year in the program, the 2006 entering cohort showed an 8% reduction in the percentage living below $1/day and a 9% reduction in those living below $2/day.
In addition to track such trends, the monitors do member-satisfaction focus groups and exit interviews with members who decide to leave Fonkoze. They thus become the most important way that Fonkoze has of judging whether it’s doing its job.
Naël had interviewed a group of members who had been written off three-six months ago. They were angry with Fonkoze because they felt they had been treated unfairly. They had, they said, always repaid their loans on time. They belonged, however, to solidarity groups that included other members who hadn’t been able to repay.
He and I spoke to one woman who can serve as an example: She told us that she and three of the other members had always repaid on time. In fact, until their most recent loan, which was written off in December 2007, all five of them had managed well enough.
But one of her friends took her part of their last loan to Miragwann, a major port on the coast south of Port au Prince. She invested her whole loan in a shipment of used clothing. When she got the shipment back to Marigo, she discovered that the clothes she believed she had purchased had been exchanged for stuff with a much lower value. She lost a very high percent of her investment, and could not repay her share of her loan. Normally, her fellow group members would pick up the slack, but with the economic situation in Haiti deteriorating, and their own sense that she would not be able to pay them back, they did not feel that they could.
From what was Fonkoze’s perspective at the time, all the members of such a group were delinquent. Fonkoze had not offered individual loans to any of them, but had offered loans to groups of five. Each woman had signed a loan agreement stipulating that she was part of a group loan, sharing with the group’s other members the responsibility for ensuring that the whole loan was repaid.
Thanks to Naël’s work, Fonkoze had re-established contact with women who wanted to be considered for new loans. But the decision to offer credit to a woman who’s been written off once needs to be made with care. Fonkoze needs to talk with her, to hear her story. It needs to check her repayment history. It needs to be able to assure itself that it makes sense to put new credit in her hands.
So Naël had taken me to see the group together with Domerson Millien, Fonkoze’s Regional Director for Credit and Operations in the southeast. It took the three of us almost the whole day to meet with three members, if you count the amount of time we spent getting to their village outside of Marigo, waiting for them in yard where their credit center meets, and walking back and forth between that village and a market about 45 minutes away in Peredò.
It’s a lot of staff time to commit to three or four out of 54,000 borrowers, and Domerson isn’t finshed working with those women yet. He will have some work to do going through records to confirm that a new loan makes sense, and then he’ll have to meet with the women again to explain what he thinks he can offer them. But right now Fonkoze’s situation simply requires such efforts.