Fonkoze innovates new products to serve the poor

Fonkoze newsletter, [23 August 2002]

Economic development cannot occur successfully when only the few are included. To fulfill its mission of building the economic foundations for democracy in Haiti, Fonkoze is innovating new loan products to serve merchants in their earliest stages of development.

Imagine large manufacturers in the U.S., Japan or Europe trying to sell their products when small retailers had no access to credit for stocking inventory! All levels of the value-chain would suffer, including the end-consumer.

In a prior e-newsletter we discussed rural Haitians’ perceptions of the merchants in their area. This survey research, conducted by Fonkoze and Concern Worldwide, revealed that rural Haitians define merchants in their area as small, medium and large.

To repeat, the smallest merchants have the following characteristics:

• sell merchandise from a small wooden tray or basket
• sell in small amounts (e.g. a few stock cubes, half a gallon of kerosene, and produce from the garden)
• buy and sell in the same market
• women stated that capital ranges from US$7—US$28; men stated that capital ranges from US$55—US$185

By targeting the poorest merchants, Fonkoze hopes to remain with them from the beginnings of their business through their development into successful and sophisticated traders. Fonkoze also hopes to accompany a new class of clients out of poverty.

Why is it important to design loan products that specifically meet the needs of these smaller-scale (and, generally, poorer) merchants?

1) As many of us may know from experience, too much credit can be as harmful as a lack of credit;

2) These small merchants may not be able to meet minimum savings and/or membership requirements of the main-line credit program—most, for example, are too poor to afford the minimum savings requirement of approximately US$10.

So, Fonkoze has designed a loan product specifically created to meet the needs of these small savers / borrowers, and to bring them into the main-line microfinance program.

The new product has the following features. We have provided these specific details so you can understand how Fonkoze’s loan program functions on the ground.

New Loan Product Features

1) Credit amounts (actual loans are given in Haitian Gourdes):

• Loan 1: US$19
• Loan 2: US$28
• Loan 3: US$37

If all credits are reimbursed well, the clients can enter into Fonkoze’s primary credit with education program.

2) Duration of credit: 1 month

3) Reimbursement: 2 times per month

4) Savings: US$1 to open the account

5) Training: 2 weeks

6) One-time Membership Fee: $1.85 per person

7) Required Savings: 10% of credit amount

8) Methodology: Group of 5 individuals

9) Interest Due: 3% per month (on Haitian Gourdes)

10) Center: Special center composed of small-borrowing groups

11) Identification of Qualified Individuals: Visit by credit officers to observe the state of their home, assets they have, ways they make a living

12) Conditions: The client must already be engaged in commerce, or have the intention to start a small business

13) Delinquency: Upon 2nd late payment, they will be ineligible for further borrowing

14) Late penalties: 0.2%—0.5% per day of principal late fee

Thus, Fonkoze’s loan product is designed to accompany the poorest merchants out of poverty, while holding them to disciplined standards of repayment.

Fonkoze credit, savings, and education services can benefit even the poorest of Haiti’s rural citizens if products and services are designed to meet clients where they are and take them where they want to go. That is what it takes to build a well-functioning and democratic economy.