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#5265: Big Haitian banks seek to help small business people (fwd)
From: Greg Chamberlain <GregChamberlain@compuserve.com>
(Boston Globe, 7 Oct 00)
By Richard Chacon
PORT-AU-PRINCE -- 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."