24139: Slavin: (News) Loans seen as no solution for Haiti's poorest (BGlobe012505) (fwd)

[Bob Corbett <corbetre@webster.edu>]

from: jps390@aol.com

http://www.boston.com/news/world/latinamerica/articles/2005/01/25/loans_seen_as_no_solution_for_haitis_poorest/?rss_id=Boston+Globe+--+World+News

Loans seen as no solution for Haiti's poorest

Some specialists say microfinance is limited

By Reed Lindsay, Globe Correspondent  |  January 25, 2005


THOMONDE, Haiti -- Despite political conflict that led to the ouster of former President Jean-Bertrand Aristide last February and the freezing of hundreds of millions of dollars in international aid, microfinance initiatives have flourished in Haiti in recent years.


With international aid flowing once again toward an interim government that has the blessing of the United States and the support of more than 8,000 UN peacekeeping soldiers and police, aid organizations are looking to microfinance -- loans to small-business owners -- as a key to rebuilding this devastated nation.


But among Haiti's poorest, many are wary of the loans, such as Rene Jacob, who lives in a tiny, faded green wood-plank house at the edge of Thomonde, a small town in the heart of Haiti's parched Central Plateau. Jacob, 40, a wiry man with soft eyes and a gentle demeanor, makes a living by mixing roots he scavenges with "kleren," a home-brewed, sugarcane-based alcohol, and selling glass flasks of the concoction to men who think it is an aphrodisiac. He can earn as much as $1.35 if he sells a gallon, he said, but he rarely does so in one day.


Occasionally, he sells charcoal made from branches he cuts down from the seven trees on the small property his family has rented for 30 years in Thomonde.


He said he usually makes enough to buy medicine for his mother or provide a meal a day of rice or corn for the seven family members crammed into his house. Jacob said he knows people who received microcredits from Haiti's leading microfinance institution, but he is not interested in applying for the $81 start-up loan because he is afraid of going into debt.


"I am so poor," Jacob said. "I don't want to get a loan from someone because I might spend the money and then have a problem paying it back."


Increasingly, specialists in microfinance see such fears as legitimate.


Among Haiti's microfinance institutions, none has been as successful as Fonkoze, which now gives loans to more than 25,000 street vendors and other small-business owners -- 98 percent women -- with a default rate of less than 2 percent.


But Fonkoze director Anne Hastings said she would be the first to warn of the limits of microfinance, especially in Haiti, beset by staggering poverty and crippling natural disasters: "We're really reaching primarily the upper half of those who are in poverty. 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."


Fonkoze -- an acronym for Fondasyon Kole Zepol, or Shoulder-to-Shoulder Foundation -- launched a pilot program in 2003 aimed at the extreme poor that reduced the amounts of a required savings-account deposit and the initial loan, and made payment of a membership fee gradual. But Hastings said the results have been "disappointing," despite free business training and literacy courses.


Now, she is among a growing chorus of microfinance specialists who have begun to question the principles underlying microcredit programs, such as self-sufficiency and cost-effectiveness, in the belief that cash loans of any size to the extreme poor can be counterproductive.


"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 US Agency for International Development, or 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."


Microcredits are small loans to individuals, while 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, or UNDP, says the number of poor people with access to microcredit worldwide more than tripled from 1997 to 2001, from 7.6 million to 26.8 million.


Under a law passed by the US Congress in 2003, USAID must ensure that 50 percent of the money it gives to 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 determined by each nation. Still, some specialists say the problem is not so much that microcredits are not reaching the extreme poor, but that they are ill suited for the extreme poor.


Extreme poverty often refers to those who live on less than $1 a day. In Haiti, 65 percent of the population fits this description, according to the UNDP.


"The poor are not homogenous," said Rabeya Yasmin, who has pioneered a program based on grants targeted at the extreme 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."


Instead of loaning money, the BRAC Ultra Poor Program provides beneficiaries with a mixture of handouts, productive assets -- often farm animals -- and training in the hope that at the end of two years they will be capable of entering the institution's regular microcredit program.


Yasmin visited Haiti at Hastings' request last November, and Fonkoze hopes to replicate the grant-based program in the Central Plateau with help from Zanmi Lasante, the Haitian affiliate of the Boston-based organization Partners in Health. The two organizations formed a partnership last July, hoping to end extreme poverty in the Central Plateau.


While Fonkoze operates as a bank and demands beneficiaries pay back business loans with low interest, Zanmi Lasante gives free medicine, shelter, and food to its HIV/AIDS and tuberculosis patients.


"How can we ask people to succeed in a failing economy?" said Dr. Paul Farmer, a Harvard physician who helped found Zanmi Lasante in the Central Plateau town of Cange. "We need to have allies who don't couch everything in terms of sustainability or cost-effectiveness. These formulas have helped many, no doubt. But we are trying to help people below the radar of those who develop and circulate these latest fashions in international aid." 


© Copyright  2005 The New York Times Company
 

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J.P. Slavin
New York
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