- The Washington Times - Monday, January 24, 2005

THOMONDE, Haiti - Despite political conflict that led to the ouster of elect-ed President Jean-Bertrand Aristide last February and the freezing of international aid, microfinance initiatives flourish in Haiti.

None has been as successful as Fonkoze, Haiti’s leading microfinance institution, which gives loans to more than 25,000 street vendors and other small-business owners, 98 percent of them women, at a default rate of less than 2 percent.

Fonkoze’s growth has been part of a worldwide boom in microfinance in the past decade, leading the United Nations to declare 2005 the “International Year of Microcredit.”

Microcredits are defined as small loans to people, and microfinance refers to a range of financial services, including microcredit, savings accounts, money transfers and insurance targeted at low-income clients. The United Nations Development Program (UNDP) says the number of poor people with access to microcredit more than tripled from 1997 to 2001, rising from 7.6 million to 26.8 million.

Now, with international aid flowing once again toward an interim government that has the blessing of the United States and the backing of more than 7,000 U.N. peacekeeping soldiers and police officers, aid organizations are looking to microfinancing as a key to rebuilding this devastated nation.

But at Fonkoze — an acronym for Fondasyon Kole Zepol, or Shoulder-to-Shoulder Foundation, whose sound also means “make cause,” or “common cause” — the prevailing mood is one of caution, not optimism. Anne Hastings, director of Fonkoze, says she would be the first to warn of the limits of microfinance, especially in Haiti, a country beset by staggering poverty and crippling natural disasters.

“We’re really reaching primarily the upper half of those who are in poverty,” Mrs. Hastings said. “For the poorest of the poor, which is a majority in Haiti, we now know that microcredit alone is not the solution. Instead, it ends up being a burden.”

Struggling to survive

Even as political violence rages on in Port-au-Prince and the economy plummets, business is brisk at Solange Derose’s open-air market stall in the tree-lined town of Thomonde, in the heart of Haiti’s parched Central Plateau region.

“Things are great today,” says Miss Derose, 45, as she scoops rice from her cluttered table of bars of soap, tomato paste, dried fish, bouillon cubes, salt and cooking oil, as a customer waits in the shade of the stall’s thatched banana-leaf and stick roof. “I don’t know how much I’m making, but it’s more than I used to.”

Miss Derose says she is grateful for a small loan she received from Fonkoze, which allowed her to expand her inventory and buy a donkey to transport her products from home to the market at a cheaper price.

But in Haiti, people with even modest resources like Miss Derose are the exception.

Down a dirt and rock road from the market, Rene Jacob stacks a 4-foot sack of charcoal against a tiny faded green wood-plank house. Mr. Jacob, 40, a wiry man with soft eyes and a gentle demeanor, says he makes the charcoal by cutting down branches from the seven trees that are spread around the small piece of property that his family has rented for 30 years at the edge of Thomonde.

Mr. Jacob says he can sell the charcoal for $2.70, but has to wait for the branches to grow back before he can make more. Asked how he survives, he dashes behind the house and returns with a plastic gallon jug containing a red liquid.

“This is my hope for tomorrow,” he says with an earnest smile. “This gallon of alcohol is my whole life. When I see my wife, my baby, my mother are hungry, I must sell this alcohol to get money so we can survive. … I do this because I have nothing else to do.”

Mr. Jacob buys kleren, a home-brewed alcohol made from sugar cane, mixes it with a concoction made from roots he has scavenged and sells glass flasks of the finished product to men who believe it is an aphrodisiac. He can make up to $1.35 if he sells a whole gallon, he said, but he rarely does so in one day. His 8-year-old daughter recently was sent home from school because he did not have $8 to pay for her three months of tuition, a common burden of the poor in Haiti, where public education is underfunded and most students go to private schools.

He says he usually makes enough to buy medicine for his mother, who has tuberculosis, or to provide one meal a day of rice or corn to the seven members of his family who are crammed into his house. Sometimes, friends give them something to eat if profits from his alcohol sales are slim.

Mr. Jacob has heard of Fonkoze, but is not interested in applying for the $ 81 startup loan because he fears going into debt.

Not for everyone

“The last thing you want to do is make a poor person even poorer by giving them a loan they can’t pay back,” said Lauren Mitten of Development Alternatives Inc., a private contractor that runs a microfinance project in Haiti for the U.S. Agency for International Development (USAID).

“There are lots of microfinance institutions trying to reach the same people with the same products. But no one is reaching the extreme poor.”

Under a law passed by the U.S. Congress in 2003, USAID must ensure that 50 percent of the money it provides in microfinance is targeted to the “very poor,” defined as those living on less than $1 a day or the bottom 50 percent of all those living under the poverty line in that country.

But some analysts say the problem is not that microcredits are not reaching the extreme poor, but that they are ill-suited for them.

“The poor are not homogenous,” said Rabeya Yasmin, who has pioneered a program based on grants targeted to the most poor for BRAC, formerly known as the Bangladesh Rural Advancement Committee, which lends money to nearly 4 million women in Bangladesh, making it one of the largest microfinance institutions in the world.

“Microfinance has been incredibly successful at poverty reduction among moderately poor groups. But the extreme poor have been neglected, and it’s high time we start treating them differently. Until now, they have been absolutely hidden from view.”

Mrs. Yasmin is at the forefront of a growing number of microfinance analysts who believe that giving cash loans of any size to the most poor can be counterproductive. Extreme poverty has varying definitions, but it often is used to refer to people who live on the equivalent of less than one U.S. dollar a day. In Haiti, 65 percent of the population fit this definition, the UNDP says.

Instead of loaning money, BRAC’s ultra-poor program provides beneficiaries with a mixture of handouts, productive assets — often farm animals — and training, in the hope that after two years, they will be able to join the institution’s regular microcredit program.

Mrs. Yasmin visited Haiti at the request of Mrs. Hastings in November, and Fonkoze hopes to match the grant-based program, beginning in the Central Plateau, with the help of Zanmi Lasante, the Haitian branch of the Boston-based health-care organization Partners in Health.

Plenty to be done

Fonkoze and Zanmi Lasante have their work cut out for them.

Far from the violence of Port-au-Prince, the more than half-million people who live on the Central Plateau trudge through the same grinding poverty as their parents and grandparents did. Some say conditions have grown even worse as arable land has shrunk because of deforestation and the 1956 flooding of farmland to build a dam that provides electricity to Port-au-Prince.

Many families survive by growing subsistence crops in the dry, rocky soil typical in many parts of Haiti, where massive deforestation has left the land barren, creating conditions for floods and mudslides. International aid organizations provide services that in many developing nations would be expected to come from the government, whose presence in the region is negligible.

With almost no public spending on health care, Zanmi Lasante alone treats more than 1,000 patients a day.

Roads in the region are deeply rutted and often impassable after heavy rains. Telephone communication ranges from sparse to nonexistent, and Hinche, the provincial capital, has had less than a month of electricity in the past two years.

The former military, which had been disbanded by Mr. Aristide, has defied the police and U.N. peacekeepers and acts as the de facto law enforcement in the region.

“Some donors are uncertain about this project, because Haiti doesn’t have a stable government and it has a failing economy and there’s too much insecurity,” Mrs. Hastings said.

“But I say this is exactly the place to test what we’re trying to do. If we can do it here in Haiti, here in the Central Plateau, we can do it anywhere.”

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