What is the role of microfinance in the immediate aftermath of a natural disaster?   The short answer is that, under the circumstances, microcredit is less effective.  A prerequisite for microcredit is a functioning economy.  Goods and services need to be worth money for capital infusions to make a difference.  For example, an MFI lends money to a woman for the purpose of opening a general store.  The woman uses the loan to buy soap from one retailer and soft drinks from another.  She hires a local contractor to build the addition on her home, or at least purchases the materials.  The money flows around community, and everyone becomes wealthier.  But in the immediate aftermath of a natural disaster, the communities served by microfinance are so devastated that the system doesn’t work.  There is no electricity, no fuel, no food, no water, and no shelter.  Homes have been destroyed and people are starving.  A sack of rice becomes invaluable – to a starving person, no amount of money would lead them to part with food.    So it becomes a barter economy, if there is anything to barter at all.  As with everything, these points are best illuminated by example.  The most obvious is the recent earthquake in Haiti.  In reality, Haiti needs aid money, and it needs aid workers to deliver services.  Microfinance – microcredit, in particular – cannot immediately help during the relief period because there is no economy to stimulate.

Fonkoze, an MFI, participates in relief efforts.

But microfinance institutions aren’t powerless to help.  MFIs have many valuable assets.  For one thing, they have the infrastructure and the access to some of the most desperate communities.  They have fleets of development workers on the ground in positions to help.  Lastly, microfinance institutions are beacons of security in a broken landscape.  Clients with savings know that their money is safe at the bank.  Haitians with relatives overseas can reliably receive remittances through the MFI.  Just having bodies and branches on the ground is a tremendous asset.  Albert Solano, director of operations for Grameen Foundation in the Americas, discusses the role of microfinance institutions in relief efforts (it is important to distinguish this from recovery efforts, at which point a semi-functioning economy is in place.  This is an important distinction, because then microcredit can make a difference):

Relief efforts are short-term interventions that provide humanitarian assistance. Microfinance institutions (MFIs) can play an effective role during relief efforts by addressing immediate needs and providing care for its employees and by reassuring clients that their savings and deposits are safe. When MFIs have a presence in remote locations where humanitarian relief may not reach the communities as quickly, MFIs can act as information centers to inform authorities about the situation within the communities, coordinate the distribution of supplies, etc. When Hurricane Mitch struck Nicaragua in 1998, MFIs played a key role in relief efforts.

The Grameen Foundation has a partner institution in Haiti called Fonkoze.  It is a sister organization of NWTF, and also one of the first to replicate the Grameen model.  The CEO of the organization, Anne Hastings, is an American.  After days without access to the Internet, she wrote an email discussing the challenges for her organization:

At Fonkoze, we are trying to reassure everyone that their money is SAFE, even though it is not immediately accessible. We are doing everything we can to reopen as quickly as possible. But we cannot reopen without cash liquidity, security and employees – all of which are difficult to find in these days. And those three elements are only the start – we also need Internet connectivity, fuel, transportation for our employees, etc. Some of our branches in the provinces escaped with nary a blemish – but even they cannot function without cash.

Kiva also has a microfinance partner in Haiti.  Esperanza, like Fonkoze, has been able to leverage its unique and in-depth knowledge of the region, its client relationships, and it outreach capabilities through its network of loan officers and other staff to help.   Again, money is what Haiti needs.  But equally important is a reliable system of distribution that is going to effectively channel that aid money into the right places.  In this press release from Esperanza after the earthquake, the ability of the MFI to occupy this role becomes evident:

In light of this disaster, Esperanza is partnering with various doctors and medical volunteers in the towns of Elias Pina and Jimani, located on the border with Haiti. Loads of water, food, personal hygiene items and medicines have been shipped to these areas. We are also working with our already established network of pastors and church leaders who are currently preparing sites in Port-au-Prince to receive aid directly into the country.

Fonkoze staff in prayer; damage to the headquarters.

While microfinance itself will not help Haiti right now, microfinance institutions can.  It is a terrible tragedy for a country that has never been able to catch a break.  But even now, only a few weeks after the earthquake, signs of an economy are showing.  Fonkoze has been able to leverage its infrastructure already to begin the long rebuilding process, even as relief efforts are underway.  Newsweek describes a successful effort to deliver $2 million in remittances from the U.S. to Fonkoze clients:

The amounts were trifling: no more than a few dollars per client.  But for tens of thousands of desperate Haitians, the nimble infusion of cash amid the chaos and ruin literally meant survival. For the legions of aid bureaucrats, charities, civic groups, and emergency organizations struggling to get a grip on the Western hemisphere’s worst natural disaster in memory, Fonkoze’s nationwide client base of 200,000 depositors (50,000 of whom are also borrowers) was a ready-made lifeline.

This is a drop in the bucket compared $2 billion to the relief efforts coordinated by American charities ($560 million), the U.S. government ($379 million), and other organizations.  But this money is not being channeled through the Haitian government.  It is instead going through relief organizations, like the Red Cross and Doctors without Borders, and institutions with the foundation and connections to best distribute the aid — like Fonkoze and Esperanza.


1 thought on “Helping Haiti: Microfinance and Natural Disasters”

Gemma · February 16, 2010 at 11:45 pm

Awesome post Josh, I’ve been thinking about this a lot lately; I’m jealous of your writing and research skills!

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