November 18, 2005
Fonkoze Helps Transform Microfinance to Reach the Poorest of the Poor in Haiti
by William Baue
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, Haitiís 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.
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
"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 SocialFunds.com. "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.
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.