Fonkoze Releases Annual Report

Fonkoze, Haiti's most successful micro-lending institution, has released its annual report.  After a year of growth in 2009, the earthquake was a major blow to its operations.  Ten Fonkoze branches were severely damaged or destroyed.  Four hundred and fifty staff lost their homes and over 19,000 clients lost homes and/or businesses.  Fonkoze responded by expanding support to earthquake affected clients, including the use of micro-insurance as a tool to help rebuild their livelihoods.  Attached is both the annual report and an impact analysis.  Below is a summary of their 2009 and 2010 activities.    

Fonkoze 2009 Social Performance Report

 -Executive Summary-

For 15 years, Fonkoze has worked to fight rural poverty in Haiti by providing our clients, mostly women, with access to the financial and educational tools they need to realize lasting improvements in their lives.    Since 2006, Fonkoze’s Social Performance Monitoring and Market Research  (Social Impact) department has monitored Fonkoze’s progress toward achieving this mission. In 2009, this meant conducting interviews with over 1,200 clients, leading focus group discussions with over 800 clients, and carrying out exit interviews with approximately 360 former clients.  Social  Impact  Monitors  (SIMs)  based  in  branches  throughout  Haiti  interact  directly  with  clients  to  collect  social  and  economic data and anecdotal information that help Fonkoze managers refine our products and services to better suit  the  needs  of  the  poor.  The 2009  Social  Performance  Report  aims  to  provide  a  reflective  and  transparent  analysis  of  data captured throughout the year in order to take an honest look at Fonkoze’s institution‐wide social performance.

2009 was a critical year of stabilization and recovery for Fonkoze and our clients. At the close of 2008, a series of four  tropical  storms  and  hurricanes  ravaged  the  livelihoods  of  14,000  Fonkoze  clients,  leaving  both  the  institution  and  those  we  serve  in  a  weakened  position.  Our strong  response  to  this  crisis  set  the  stage  for  recovery  in  2009.  Feeling  the  effects  of  the  storms  and  the  global  economic  crisis,  Fonkoze  made  the  strategic  decision  to  slow  growth  of  our  primary  loan  product,  Solidarity  Credit,  in  order  to  focus  on  serving  existing  clients  well.  However, we  expanded  smaller  yet  strategically  important  credit  and  non‐financial  programs  designed  to  broaden  our  institutional  reach,  and as a result, in 2009 we addressed the most diverse range of client needs in our history.

Progress Along the Staircase out of Poverty: Fonkoze’s  unwavering  commitment  to  serving  Haiti’s  poor  has  driven  us  to  develop  our  Staircase  out  of  Poverty approach—a  series  of  four  complementary  programs  and  products  designed  to  meet  clients  wherever  they  are  and  accompany them on their journey out of poverty.

The First Step: Chemen Lavi Miyò (CLM), or Pathway to a Better Life, is an 18‐month non‐credit program designed to  help  the  poorest  of  Fonkoze’s  clients  build  the  assets,  skills,  and  confidence  they  need  to  begin  the  journey  out  of  extreme  poverty.  The  program  completed  its  pilot  phase  in  early  2009  with  remarkable  results:  95  percent  of  the  participants  successfully  graduated  from  the program  and  85  percent  chose  to  move  up  the  staircase  into  TiKredi.  Clients  also  achieved  significant  decreases  in  poverty  as  measured  by  Fonkoze’s  Poverty  Scorecard,  as  well  as  a  43  percent  increase  in  the  number  of  CLM  members  sending  “most  or  all”  of  their  children  to  school,  and  a  50  percent  increase  in  the  number  of  members  cultivating  their  own  food.  In  2009,  Fonkoze  improved  the  program  through  lessons learned in the pilot phase, and enrolled 250 new families into CLM.

The Second Step: TiKredi,  Small  Credit,  caters  to  women  who  graduate  from  CLM,  as  well  as  to  women  who  do  not  qualify  for  CLM, but are not yet prepared to manage a loan as large as US $75 (Solidarity Credit—the third step on the staircase). TiKredi  participants  are  given  smaller  loan  amounts  over  shorter  periods, and  are  provided  with  intensive  business  and  life  skills  training.  After six  months  they  are  primed  for  graduation  into  Fonkoze’s  core  lending  program,  Kredi

Solidè (Solidarity Credit): New  TiKredi  clients  interviewed  in  2009  were  20  percent  more  likely  than  Solidarity  clients  to  live  on  less  than  $1/day,  and  44  percent  more  likely  to  suffer  from  chronic  hunger.  This  year  the  program  expanded  to  reach  2,620  clients  in  13  of  Fonkoze’s  41  branches.  Enrollment  in  TiKredi  is  ongoing,  and  during  the  year  over  1,000  clients  completed the six‐month program and graduated into Solidarity Credit, celebrating the economic empowerment that  this milestone represents.

The Third Step: Kredi  Solidè, or Solidarity  Credit, is  Fonkoze’s  primary  lending  program  and  represented  90%  of  our  clients  in  2009.  Kredi  Solidè  clients  tend  to  have  greater  food  security,  better  living  conditions,  and  greater  confidence compared to TiKredi clients.   Incoming  Solidarity  clients  were  slightly  poorer  in  2009  than  in  2008.  Of the 286 new clients interviewed, approximately 53 percent of them were living on less than  $1/day and 69 percent were living on less than  $2/day.  Seventy‐nine percent of these clients suffered from some form of food insecurity—either  “food insecure without hunger” or “food insecure with hunger”—as categorized by our food security survey.   Of the 402 continuing clients who were re‐interviewed in 2009 after one year of Fonkoze membership, we saw 2.3 percent move above the  $1/day line and 2.2 percent move above the  $2/day line.  Among this cohort, we also found a 12 percent decrease in the percentage of clients living with chronic hunger.  For 27 clients who were re‐interviewed after two years or more, we  saw  poverty  decrease  by more  than  five  percent  in  both  the  $1/day  and  $2/day  categories.  Analysis  of  social  indicators  for  the  same  cohort  shows  some  notable  improvements:  a  22  percent  increase  in  the  number  of  clients  who  eat  meat  regularly;  a  15  percent  increase  in  the  number  of  clients  who  get  their  water  from  a  pipe  or  faucet;  and  a  15  percent  increase  in  clients  who  have  a  high  quality latrine. Food security in this client cohort increased to 68 percent—an improvement of 16 percent.  Some of the most encouraging results came from progress demonstrated by Solidarity clients who participated in our Kredi Siklòn  (Hurricane Loan)  program.  These clients suffered significant loss  of  business  and  personal  assets  in  the  2008 storms.   Social Impact re‐interviewed 308 Kredi Siklòn clients  one  year  after  they  had  received  their  new  loans.  These clients  moved above the $1/day and $2/day poverty lines at the same rate as Solidarity clients who were not affected by the  storms.  Among Kredi Siklòn  clients,  we  saw  a  decrease  from  60  percent  to  43  percent  of  those  living  with  chronic  hunger.  These results  show  that  Kredi Siklòn  clients,  on  average,  were  successful  at  stabilizing  their  situation  and  did  not slip deeper into poverty in 2009.   In  2010, Fonkoze will  focus on  applying  our  lessons  learned  through  the  Kredi Siklòn  program  to  support  the  stabilization and recovery of our 19,000 clients affected by the earthquake.

The  Final  Step:  Business  Development  is  Fonkoze’s  only  individual  loan  product  and  starts  at  US  $1,300.  It  targets  small  and  medium  enterprises.  These clients  typically  use  their  loans  to  invest  in  permanent  shops  that  carry  food,  clothing,  household  supplies,  cosmetics,  or  construction  materials  such  as  tin  and  cement.  In  2009 this product  grew  to serve over 1,300 clients, a 30 percent increase from 2008.   The programs and products that comprise Fonkoze’s Staircase out of Poverty are reinforced by other essential   services—education, health, and micro‐insurance.  In 2009, Fonkoze’s Education and Literacy program added 10 coordinators to its staff, expanded coverage into 20  Fonkoze branches, and reached over 13,000 clients with its basic literacy, business and life skills modules.   Our Health program,  Santé,  piloted  a  campaign  to  fight  malnutrition  among  the  children  of  our  clients.  410 children were screened, 106 of which were treated for malnutrition. Santé also distributed a two‐month supply of vitamins to 13,200 children and distributed 400,000 de‐worming pills to clients, children, and other community members.   Our credit‐life  insurance  product  covered  214  clients  who  passed  away  in  2009.  This insurance  product  covers  the  outstanding  amount  of  the  client’s  loan  and  pays  a  death  benefit  to  the  family  of  about  US  $128  to  defray  funeral  costs and temporary loss of income.

Client Exit and Satisfaction: For the third year in a row, of those clients who left the program, one‐third of those interviewed did so less than one year into  the  program.  Clients exited for many reasons in 2009,  but  business  failure  continued  to  be  the  primary  cause.  For the second year in  a  row,  we  found  that  exit  clients  were  slightly  poorer  than  the  average  continuing  client.  Possible factors behind this trend may include: clients  did  not  fare  well  with  debt;  clients  were  actually  poorer  when they started; clients suffered setbacks caused by external shocks, personal emergency, or life change.   Overall, even exit clients communicated  high  levels  of  satisfaction  with  Fonkoze.  Over 91 percent of exit  clients  stated  that  Fonkoze  helped  their  family  “a  lot”  or  “somewhat.”  Clients reported being  able  to  buy  more  and  better  food,  send  their  children  to  school,  pay  for  healthcare  expenses,  afford  clothes  and/or  household  goods,  and  make  investments  in  animals  or  land.  In focus group discussions,  clients  primarily  praised  Fonkoze  for  our  education services, micro‐insurance product, and post‐disaster responses, such as Kredi Siklòn.

2010 and Beyond:  2010 began with much promise. Haiti made it through 2009 with no major destabilizing events, allowing Fonkoze and  our clients to make tremendous strides forward. However, at 4:53 p.m. on Tuesday, January 12th, a 7.0 magnitude earthquake violently shook the ground beneath Port‐au‐Prince and surrounding areas. These 35 seconds transformed  our world as we knew it—taking the lives of over 200,000 of our neighbors, family members, and friends, ravaging  homes  and  businesses,  and  ultimately  sending  shock  waves  throughout  the  country.  Total  damages  and  losses  are  estimated  at  a  record‐breaking  US  $8  billion,  or  120  percent of Haiti’s gross domestic product. Fonkoze’s  infrastructure,  staff,  and  clients  suffered  unprecedented  loss  from  the  earthquake  as  well.  Ten  of  41  Fonkoze  branches  collapsed  or  were  destroyed,  over  450  of  our  employees  suffered  severe  damage  to  or  complete  loss  of  their  homes,  and  five  of  our  employees  were  killed.  Our  clients  endured  paralyzing  losses,  as  over  19,000 of  them  saw  their  homes  and/or  businesses wiped  away during the earthquake and in the days following.    When  the  earthquake  hit,  Fonkoze  was  in  the  midst  of  developing  a  new  micro‐insurance  product  designed  to  protect  our  clients’  personal  and  business  assets  in  the  case  of  natural  disasters.  Given  the  scale  and  magnitude  of  the  earthquake,  Fonkoze  decided  to  launch  the  product  immediately  as  a  part  of  Kore  Fanmi  Fonkoze  (Program  to  Reinforce  the  Fonkoze  Family),  a  disaster  relief  and  livelihoods  recovery  program  that  treats  clients  as  if  they  had  already  been  paying  for  a  catastrophic  micro‐insurance  plan  when  the  earthquake  hit.  In  essence,  Fonkoze  turned  this  devastating  disaster  into  an  opportunity  to  test  micro‐insurance  as  a  tool  to  help  clients  stabilize  and  rebuild  their livelihoods following natural disasters.

The  micro‐insurance  pilot  provides  earthquake  victims  with  a  one‐time  indemnity  payment  of  5,000HTG  (US  $128),  eliminates  outstanding  pre‐earthquake  debt,  and  offers  a  new  loan  to  restart  their  businesses  if  they  are  ready.  Additionally,  clients  will  participate  in  four  educational  trainings  on  disaster  risk  reduction  and  safe  home  construction.  During  these  trainings, Fonkoze  will  incorporate  lessons  about  insurance  as  an  important  tool  to  help  mitigate  the  negative  economic  impact of  future  natural  disasters on  clients  and  their  families.  Fonkoze  will use the  lessons  learned  from  this  pilot  to  refine and roll out our permanent catastrophic micro‐insurance product. Other components of our recovery program  include  one‐time  cash  assistance  for  clients  and  employees  serving  as  host  families,  as  well  as  financial  and  technical  support for permanent home construction for select clients.  In essence, Fonkoze turned this devastating  disaster into an opportunity to test micro‐ insurance as a tool to help clients stabilize and  rebuild their livelihoods following natural  disasters.

Beyond our earthquake recovery program, in 2010 we will prioritize other initiatives that diversify and strengthen our  product and service offerings, with a focus on enhanced client protection and satisfaction.  This will lead us to:

1) Scale  up  the  first  two  programs  on  our  staircase—CLM  and  TiKredi—to  accommodate  women  who  slipped  deeper into poverty following the earthquake

2) Increase flexibility for well‐performing Solidarity clients by allowing them to access additional capital more  quickly and easily through a “top‐up” on their existing loans

3) Launch a new online lending platform—Zafen.org—to connect investors from abroad with promising small  and medium enterprises and community projects in Haiti

4) Establish a new in‐house training center to ensure Fonkoze employees—our greatest assets—are equipped  with the tools and confidence they need to deliver high quality services to our clients

5) Integrate improved client protection policies and practices into our business operations by using the six core  Client Protection Principles and tools developed by the Smart Campaign as our guide

6) Pilot a new hotline where clients and employees can receive timely responses to questions and complaints

Robust social performance monitoring will play an integral role in all of our 2010 initiatives, enabling Fonkoze to  maintain a balanced picture of client progress. The Social Impact department plans to add three new SIMs in 2010,  increasing geographic representation from five to seven of Haiti’s 10 departments. We will also complete conversion to a new social data management tool developed by the Grameen Foundation to help the department carry out  timely and accurate analysis of client data.   Fonkoze’s commitment to being an institution on which Haiti’s poor can rely remains stronger now than ever before.  Social Impact will continue working to provide Fonkoze with the information it needs to support clients, so that  they can face the future with confidence no matter what it holds.