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#5264: Small loans, big hopes Microlending lets Haitians seek , credit (fwd)

From: nozier@tradewind.net

Small loans, big hopes Microlending lets Haitians seek credit
 By Richard Chacón, Globe Staff, 10/7/2000 

PORT-AU-PRINCE, Haiti - In the three years he has run a small paint
store along a dusty row populated by mechanics and body shops,Raymond
St. Juscar has never had a savings account, much less a credit line from
a bank. Like most other struggling entrepreneurs in this hard-pressed
country, his idea of a loan was to  borrow cash from someone on the
street, for 10 percent interest or more per month. So imagine his
 shock when a loan officer from one of Haiti's largest banks came
knocking on his tin-shack workshop two months ago, offering him money at
 only 3 percent a month.''I never thought a bank would make a loan to
me,''said St. Juscar, 40, who immediately took out a five-month loan for
roughly $500. ''Now I don't have to spend my own money to buy
supplies. I can use it for my family.''Juscar is part of a quiet but
growing revolution in Haiti's banking industry. Desperate to find new
customers in a country squeezed by chronic economic problems and years
of political turmoil, two of Haiti's largest commercial banks are now
pinning their hopes on a market they once turned away from: the small,
poor entrepreneur.''We've had a banking system here that, for more than
a century, took money from the poor and loaned it to the rich,'' said
Pierre-Marie Boisson, chief economist at Sogebank, which last month
started its own so-called microcredit program. ''Now, we're realizing
that we need to give poor business owners access to credit.''
The concept seems simple: Find struggling but determined entrepreneurs
And give them a boost by offering them small loans they can retire in a
 few months, paying weekly or every two weeks.
It's an idea that has been used in developing countries around the world
and pioneered by nonprofit organizations such as Somerville-based
Accion Internacional, which began working with commercial banks on
microloan programs in Latin America more than 20 years ago.
As it has done in countries like Bolivia, Colombia, and Mexico, Accion
Internacional is training Sogebank officials in Haiti on how to run its
new  program, which gives small-business owners loans of between $80 and
$400 that are normally paid back in five months. Accion is also an
investor in Sogesol, the bank's new microcredit subsidiary.
Haiti's other bank-based microloan program, run by UniBank, began late
last year with help from IPC, a German consulting firm.
The idea has only now come to Haiti because of two recent developments.
The Haitian government, which once tightly regulated the country's
banking industry, has given banks more flexibility on the interest rates
they can charge for a loan. It has also loosened the  minimum reserve
for bank deposits, which essentially allows institutions
 to make more loans. The changes have been a blessing for a banking
 community hit hard by the country's worsening economic and political
 crises.A three-year political dispute between Haiti's government and
opposition parties has cost the country millions of dollars in foreign
aid. The political gridlock, combined with a falling currency and rising
crime, has contributed to the decline in Haiti's economy over the past
decade.To draw more business, the two banks have turned to microloans.
Such a plan requires a much different approach to traditional lending,
especially in a country like Haiti, where 80 percent of business is
conducted in an informal economy. Most small-business owners here don't
have tax records, credit reports, or assets to use as collateral.
Instead, loan officers who have been trained in microlending use
different standards to determine a borrower's ability to repay: the
length  of time the business has existed; any household goods that could
be used as collateral; and the owner's character and willingness to pay
back the loan and expand the business.The process also requires that
loan officials spend time with the entrepreneur at the business, making
sure that the money borrowed is  used for the business and that the
entrepreneur pays the loan back on time.  Because microloan recipients
require so much hand-holding, many  private banks stayed away from these
programs because they didn't think the investment was worth the risk or
the small profit they would make. But that has changed. Driven largely
by the example and success of these programs run by nonprofit
organizations, private banks have stepped into the market. Less than 10
percent of all microloans in Latin  America were underwritten by banks
five years ago; today, it's more than 60 percent.''Nonprofit
organizations showed the banks that poor people are good at
paying back their loans,'' said Maria Otero, president of Accion
Internacional, which has about 1.4 million clients in Latin America.
Instead of paying street lenders 10 percent a month interest, or more,
business owners can take out bank loans at about 3 percent, which is
closer to the going rate throughout Latin America. With the $400 loan
she received last month, Marie Lucie Jeune applied the concept of buying
in bulk to stock her cinderblock neighborhood store, where she sells
spoonfuls of tomato sauce, single-size bags of cereal, and single pats
of butter.'Now, I keep an inventory,'' said Jeune, who started her
business 22  years ago with a table full of food outside her home. ''I
buy whenever I see something on sale. At first, I didn't think someone
from a bank would understand my ideas.'Haiti's banks know that to keep
these programs profitable, they'll have to attract thousands of new
clients, many of whom are fearful or skeptical of banks. In a country
where about 90 percent of working-age Haitians are self-employed, that
may not be so hard. Sogebank's goal is to sign up 30,000 microloan
clients in five years. But officials like Boisson know there is also a
long-term benefit to the risk they're taking now. By moving borrowers
from street-corner loan sharks to banks, they can bring some order to a
country - and an economy - that desperately need it.
''This is not going to be a panacea for all this country's problems,''
added  Boisson, a graduate of Harvard University's Kennedy School of
Government. ''Yes, we want to find new customers, but it's also a
chance to lift people out of poverty, and to give structure to our
informal economy.''