July 11, 2010 | Read Time: 3 minutes
Even before January’s massive earthquake, natural disasters were a fact of life in Haiti, an island often buffeted by powerful hurricanes, widespread flooding, and mudslides. Yet finding ways to help Haitians prepare financially for such catastrophes has been hard in a country where 80 percent of the population lives in poverty.
When the latest quake struck, Fonkoze Financial Services, Haiti’s largest microcredit organization, had been just months away from offering an insurance policy to its borrowers so that after a catastrophe they could receive a modest cash payment and forgiveness for their loans.
Fonkoze is one of a growing number of nonprofit groups and foundations that look beyond loans to provide additional financial services, such as microinsurance and savings accounts, to help poor people in developing countries protect themselves against risk as they try to climb out of poverty.
Thanks to money from Mercy Corps and the American Red Cross, Fonkoze was able to aid borrowers devastated by the earthquake by providing the benefits they would have received if the insurance had been in place.
Borrowers in hard-hit regions received a cash grant of 5,000 Haitian goud, roughly $128. They no longer owe any money on their loans, and when they are ready to restart their businesses, they are eligible for a new loan equal to the amount they borrowed before the disaster.
Borrowers who live in parts of Haiti not affected by the earthquake but who are housing family members who fled Port-au-Prince have also received the cash grant.
Fonkoze officials had assumed that people would use the cash grants to pay for emergency needs, such as food or shelter, but a significant number have used at least a portion of the money to restart their businesses, says Anne H. Hastings, chief executive of Fonkoze.
“Some of them said, ‘The only way I’m going to get out of this is to get my business back up and running,’” she says. “They took the 5,000 goud and used it to buy something that they could then turn around and sell—food, rice, or beans.”
Symbolic Fee
When people get to the point where they are ready for a new business loan, they are required to pay 2 percent of the loan as a sort of retroactive premium for the benefits they received after the earthquake. The fee is largely symbolic and designed to test if borrowers would be willing to pay for the service. Fonkoze will use the money to help develop a real insurance program.
So far, borrowers have been “more than happy” to pay the fee, says Ms. Hastings. She says the shock of the earthquake has convinced people that insurance is something they need to have.
She points to one borrower in Gonaïves who built up her business, only to see it decimated by flooding in 2004 and 2008 and again after this year’s earthquake.
“There is no point to struggling to make your way out of poverty—and struggling hard—if you’re going to get wiped out every two or three years,” says Ms. Hastings.
Mercy Corps contributed more than $174,000 to test the program with 500 clients near Leogane, the epicenter of the earthquake, and the American Red Cross provided $8-million to expand the program to an additional 18,000 borrowers.
Since the earthquake, Fonkoze has also received $4.5-million from the MasterCard Foundation to expand a program to help extremely poor Haitians—people who are too poor to qualify for very small loans—develop livelihoods.
Altogether Fonkoze has received $16-million since the disaster, more than quadruple the $4-million it raised after devastating flooding in 2008.
Ms. Hastings says she is very grateful for the support, but admits she is sometimes frustrated by the boom-and-bust cycle of fund raising for international development.
Says Ms. Hastings: “What is ironic and troubling—and some days makes you really angry—is why do we have to wait for the disaster to be able to raise this kind of money?”
