Fonkoze Helps Transform Microfinance to Reach the Poorest of the Poor in Haiti

Monday, November 21, 2005

After convening a summit on how to modify microfinance to serve the extreme poor, Fonkoze adapts a model pioneered by the Bangladesh Rural Advancement Committee. — Marie and Roland may seem like perfect candidates for microfinance, which extends small loans and technical support to the poor to help lift themselves from poverty. Marie sold items at market in Thomonde, Haiti, and her husband Roland worked as a sharecropper planting millet and corn–until they were diagnosed with HIV in the late 1990s. Since then, they have become too sick to support their family of four children (two of whom are also HIV-positive) through their former livelihoods–even with anti-retroviral medications provided by Zanmi Lasante, the Haitian arm of Paul Farmer’s health organization Partners in Health (PIH).

Microfinance institutions (MFIs) are increasingly realizing that microfinance as currently practiced is inadequate to meet the needs of the hard-core poor–those living on less than a dollar a day (more than half of Haiti’s population of 8 million). So Fonkoze, Haiti?s largest MFI, is working with other MFIs around the world to identify how microfinance can transform itself to effectively extend its reach from the poor to the poorest of the poor.

“Our experience from 10 years of operating has shown us that we need to tailor our products based on the poverty level of the clients we are trying to reach,” said Sharmi Sobhan, executive director of Fonkoze USA. “We are not veering from our normal microfinance model but simply expanding it to reach a special part of the population that we believe deserves to be reached–the extreme poor.”

The genesis of this transformation dates back to 2001, when Fonkoze discovered in interviews with current clients that there were even poorer people in their villages who felt they could not afford Fonkoze’s existing microfinance loans. Those loans start at roughly $70 for a six-month term.

“When we asked these poorer villagers ’why?’, they listed a number of reasons including that our initial loan size was too big and they were nervous to borrow such a high amount,” Ms. Sobhan told “As a result, we designed a loan product for the ’very poor’ called ’ti kredi’ or ’little credit’ with loans starting at $30 and lasting 3 months–we tested this product with 200 clients and after 3 cycles, the very poor had enough confidence to be mainstreamed into our regular microcredit program.”

Last year, however, Fonkoze recognized that about half of those matriculating from “ti kredi” to mainstream microfinance were dropping out. Confounded, Fonkoze looked globally to see what other MFIs were doing to reach the extreme poor, an issue that the larger MFI community is currently grappling with. For example, the lead article in March 2004 issue of the Asian Development Bank (ADB) newsletter Focal Point for Microfinance identifies three camps of thought on how to address microfinance to the poorest of the poor.

“The first camp rejects the hypothesis that the poorest can be reached with financial services on a sustainable basis,” writes Nimal Fernando, ADB lead rural finance specialist. “The second camp advocates that the poorest of the poor can be reached not only on a sustainable basis but also on a large scale.”

“The third camp recognizes that the potential for reaching the poorest on a sustainable and a large-scale basis is limited but that the search for innovative approaches to expand the outreach to the poorest must be continued,” he continues.

Aspiring toward the second camp of thought, Fonkoze convened a summit on the issue a year ago this month, gathering four preeminent experts from Asia, Africa, and the Americas including Rabeya Yasmin of the Bangladesh Rural Advancement Committee (BRAC). When Dr. Farmer of Zanmi Lasante asked on the summit’s first day, “How do you ask poor women who are sick or just recovering from sickness to go out and succeed in a faltering economy,” Ms. Yasmin’s response framed the rest of the proceedings.

“You cannot–not with microcredit alone,” Ms. Yasmin stated. “They need far more than that, but we do know what they need.”

The summit resulted in a Fonkoze adopting the BRAC model for providing microfinance to the extreme poor by coupling close case supervision with five basic sets of services, including enterprise development training, social development, healthcare, short-term living allowances, and transfer of assets needed to start businesses.

“The BRAC-Bangladesh program for the Ultra-Poor has demonstrated that for an average cost of $291 over an 18-month period, they can guide an extremely poor family with no productive assets to the point where they have a sustainable livelihood and are ready to graduate into a regular microfinance program with no further subsidization,” states Fonkoze’s September 2005 follow-up report to the summit. “They boast a remarkable 75 percent effectiveness rate.”

“With results like this we have to ask: is there a human family not worth a one-time investment of under $300 to bring them to independence and self-support?” the report asks.

Fonkoze is adapting the BRAC program to Haiti’s circumstances by targeting not only the extreme poor but also families living with HIV/AIDS and/or tuberculosis. Fonkoze’s goal is to eliminate extreme poverty in the Central Plateau of Haiti (one of the poorest regions in the Western Hemisphere) within five years. By next month, Fonkoze plans to have developed a full proposal and budget, developed partnership agreements, inaugurated a new research and monitoring unit, and announced a partnership of social investors.

Fonkoze is taking a two-step approach to partnering with social investors. The first step involves working in partnership to develop a sustainable business model during the pilot test that begins in January 2006. The second step will ask social investors to invest in a program that addresses the problem nationally over a three-to-five year time frame.

So as it turns out, Marie and Roland are perfect candidates for this emerging form of microfinance, eager to accept livestock (the BRAC program’s preferred form of assets) for re-sale as well as personal use.

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