Towards the End of the Year

The worst part of my job is write-offs. As the third quarter closed at the end of September, I wrote off a few loans. There were a couple left over at the end of October, and these I did last week. As someone who’s been to the meetings at which Fonkoze members receive their first credit, meetings animated by excitement and hope as they count out the money we put into their hands, the moment when I click the “abandon this loan” icon in our accounting system is not a happy one. I think about how far such a grim, bureaucratic end is from what a new borrower hopes for, from what she plans. It feels rotten.

We don’t generally write-off a lot of loans at Fonkoze. Generally speaking, repayment rates are high. But we are now in the fourth quarter, looking to the end of Fonkoze’s fiscal year on December 31st. And we are faced with having to write-off an unusually high number.

The reason for this is worth explaining. We are completing a year of hurricane credit, the loans that Fonkoze offered members who had been affected by the storms in August and September of last year. The loans were interest-free for the first six months. After that, the interest rate was subsidized to less than half of what the institution normally charges. These loans went to members who had lost their homes, their businesses, or both. Fonkoze eliminated the interest due on any credit already in the women’s hands, and then recapitalized them with a new loan in the amount of the loan they had taken most recently.

Fonkoze’s evaluation unit did detailed studies of a large number of hurricane credit borrowers at the time they received their loans, and the follow-up is still pending, so we can’t yet speak in very clear terms about the degree to which the loans helped people re-establish themselves. But anecdotal evidence about and from our members is plentiful and positive. And the financials are pretty good. System-wide, 80% of the money that was lent out has been repaid. In Marigo, the percentage is slightly lower.

But the hurricane credit loans that are not paid by the end of December are to be written off. Some of the credit out there is in the hands of women who are still working to pay it back. They have businesses, and are making repayments, but they are behind schedule. Some of the money is, however, in the hands of women who have no realistic chance to eliminate their debt. The loans did not enable them to re-start their business. It might be because sickness or death in their family during the year burned through their capital. It might be because their reduced level of income was too small to feed their family and send their children to school, so their assets slowly dwindled to nothing. It might be that the range of needs they had at the moment when they received the loans – to rebuild a lost home, replace furniture or clothes, or to feed hungry children – was so great that the money never went into a business in the first place. Despite Fonkoze’s efforts, livelihoods in Haiti became even much more fragile than they already were before the storms, and the impending write-offs are a direct consequence of that fact.

So our office’s whole emphasis for the next two months is to try to collect as much of the money, especially the overdue hurricane credit money, as we can before the end of the year. We laid the groundwork for part of that effort over the past six months as we improved our relationship with our credit centers’ elected chiefs and renewed an emphasis that had been flagging in Marigo on center attendance. We’re seeing more of our borrowers in their centers than we used to, and their chiefs are doing more to help us keep close track of their fellow members. Centers in places like Plantiyon, Chodri, Ravinpal and Lilankou have really turned themselves around.

But another part of that effort involves a kind of work we did little of in my first six months in Marigo. It’s called “suivi delenkans”, or “delinquency follow-up.” It involves visiting the women who are behind in their repayments at their homes or the markets where they do business.

The strategy is based on an assumption that is widely held among Fonkoze’s Haitian staff – which is more than 98% of us – that many women could pay if they felt more pressure to do so.They believe that some women, when they discover that Fonkoze can’t or won’t make them pay, will simply decide not to.

I want to be careful about this. Although it’s true that my Haitian colleagues speak of “bad faith” among some of our delinquent borrowers, I think the reality is complicated. I’m not inclined to look at the question from the perspective of the women’s moral obligation to repay their debt. There is something to that, of course, and probably have some members who have decided to take the money and run. We also have women who are so committed to making good on their promise to repay that they probably do their families some harm. Such women have been allowed to borrow too much, and they and their children are paying the price. Though Fonkoze could not survive if large numbers of women refused to pay their debt, we would rather absorb some losses than see its members’ children go without meals. If the only reason for a woman to repay a loan is her moral duty to make good on her word, she should probably default.

Fonkoze’s job is to work closely with its members to ensure both that it is more advantageous for them to repay than to default and that they understand the advantages well. This involves helping them discipline themselves to invest their whole loan in their businesses, working with them to ensure that their loan is the correct size, and accompanying them as they learn to make their businesses increasingly profitable. If their businesses are functioning well, and they can see the good use they’re making of borrowed capital, then, unless they confront a crisis in their household, they’ll repay at a very high rate. That’s been the lesson of microfinance worldwide, and in Haiti as well.

Meanwhile, we have been going out into the field to try to collect delinquent loans. Our approach to suivi delekans has been quite different from other work that we’ve done since I came to Marigo. We are sending two-four staff members out together, rather than sending a single credit agent alone. The Marigo team feels as though this gives each visit extra weight. We are borrowing staff from the Jakmèl branch for some of these visits, because the staff believes they also gain weight from the presence of an unfamiliar face. Finally, the staff has unanimously asked me not to participate. They say that in cases where something like an extra visit is necessary at all, my being foreign can only undermine them. They feel that rural Haitians are too accustomed to viewing foreigners as the bearers of gifts. So I’ve had to sit on the sidelines as credit agents and others have undertaken this important work.

So I can only report on these expeditions second-hand. They involve talking firmly with some borrowers and encouragingly with others. They have brought in some money – not a lot, but some – and have improved attendance at a couple of centers. But sending four people out into the field is expensive and hard to schedule, especially if it involves borrowing someone from a neighboring office. So we’ll need to be careful in our planning, making some good guesses as to when and where such an expedition might help.

But on January 1st, though we expect to be a smaller office after write-offs, we also expect to have a portfolio that’s in pretty good shape. Then we can return to the emphasis on reconstructing broken credit centers that has been our priority since I moved here, even as we recruit new members into those of our centers that are functioning more or less. Our intermediate goal, though not our ultimate goal, is to get our office to the point at which it can break even, and that requires a portfolio both larger and cleaner than ours now is. Write-offs are, unfortunately, part of cleaning it up. Better to stop counting on repayments from women who can’t or won’t pay back.

And it is certainly the right decision to write them off because making the branch marginally profitable is only an intermediate goal. It is, more precisely, a means. It is the means by which we make helping women remove their families from poverty sustainable. Only when this office can generate the income it needs to cover its expenses will we be able to guarantee that the work can endure.