BOGOTA (AlertNet) - Lending small amounts of money to Haitians can help kick-start the local economy and play a vital role in rebuilding the hundreds of thousands of businesses and homes destroyed by the Jan. 12 earthquake, the Inter-American Bank of Development (IDB) says.
While international aid agencies focus mainly on providing shelter, healthcare and food, major lenders like the IDB say microfinance institutions can enable quake survivors to recover their losses and get back on track, especially in rural Haiti.
"People can cope with disasters by restarting their business," said Fernando Campero, senior financial specialist at the IDB's multilateral investment fund.
"Haitians suffered significant losses because of the earthquake and microloans can help them get back capital, kick-start local economic activities and provide an opportunity for small businesses to access finance," he told AlertNet by telephone.
The IDB, Haiti's biggest source of financing, is providing millions of dollars in grants to local microfinance institutions to support their services, increase the number of customers they serve and ensure liquidity.
"In Haiti, there's plenty of room for microfinance institutions to grow and specialise, especially in the housing sector," said Campero.
Fonkoze, Haiti's largest microfinance institution, is offering some of its 55,000 women borrowers extensions to pay back existing loans, providing new loans and in some cases writing off loans following the quake.
"We will recapitalise 6,000 clients who lost businesses and or homes following the earthquake through a recovery package including loan forgiveness and new loans," said Leigh Carter, head of Fonkoze USA, the Haitian institution's American arm.
Fonkoze's customers, the majority poor women living in rural areas, are using the loans - of $180 on average - to buy everything from cooking pots and pans, building materials, fertlisers, seeds and livestock to rebuild their businesses.
Fonkoze is also gearing up to recruit new clients and scale up their microcredit services, offering loans of US$25 and less.
The microfinancier hopes to expand its microcredit programme by securing $5 million of donor aid to target Haiti's extreme poor - defined as those living below $1 a day - who make up around half of Haiti's population of 9.8 million.
"We have 200 women on the bottom rung of our programme, including people with no assets and no business, those who donÂ?t know where to start," said Carter. "We would love to take that up to 5,000 people."
REMITTANCES PROVIDE LIFELINE
Since the earthquake, increases in remittance flows - money sent to Haitians by friends and relatives living abroad - mean microfinance institutions are playing an even more important role in providing cash to struggling Haitians to buy basic goods as, by and large, they are the only organisations that process remittance flows.
Even before the quake, around a third of Haitians relied on remittances to survive. In 2008, the million-strong Haitian diaspora sent home nearly $1.9 billion, accounting for some 20 percent of HaitiÂ?s gross domestic product.
"Remittances have always been important in Haiti, but after the quake they have been super important," said Carter.
During the first two months after the quake, remittances processed by Fonkoze almost doubled, totaling nearly US$9 million last month.
With 42 branches in rural areas unaffected by the quake combined with a large network of customers, Fonkoze and other local microfinance institutions are well positioned to reach people living in remote rural areas where traditional banks do not operate.
As hundreds of thousands of people continue to migrate from the wrecked Port-au-Prince to the provinces in search of a livelihood, the role of microfinance companies has become even more crucial.
Microfinance institutions also proved to be more resilient than traditional banks in the immediate days following the quake than traditional banks.
While the central banking system took nine days to partially operate again, microfinance institutions, like Fonkoze, were up and running within a few days and some branches did not close. In one town, Fonkoze set up a mobile bank to serve its customers.
In a stealth operation shortly after the quake involving the Pentagon, the United Nations, and various U.S. state agencies, $2 million of dollar banknotes were airlifted from the United States to Port-au-Prince by military planes and helicopters and were distributed to 34 Fonkoze branches across Haiti.
MICROCREDIT NOT THE COMPLETE SOLUTION
Since the 1980s, microcredit schemes have grown into a global phenomenon, receiving the backing of major aid agencies and donors including the IDB, the United States Agency for International Development and the U.N.
But critics argue that a lack of regulation of the microfinance industry, a rise in rogue microlenders, and high interest rates Â? sometimes up to 60 percent - put poor borrowers in a debt trap rather than lift them out of poverty.
Microfinanciers acknowledge that microcredit alone is not the complete solution to Haiti's problems.
"Microcredit is one piece of a big puzzle. It's an answer to provide real hope to women who are very poor, bring people up the ladder and itÂ?s one way to energise rural areas," said Carter.
"That's just one piece of the pie, though, that goes along with investment by the private sector and investment in infrastructure," she added.
Still for the majority of Haitians who do not qualify for loans from traditional banks, microcredit before and after the quake remains one of the few sources of cash and opportunity to start a small business.
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