Fonkoze is Haiti's largest microfinance institution serving the poor (primarily rural women) in Haiti, with 44 branches located throughout the country. The name Fonkoze is an acronym for the Haitian Creole phrase "Fondasyon Kole Zepòl" meaning "Shoulder-to-Shoulder Foundation." Its Goal is to aid Haitians with financial and development services to lift themselves out of poverty. Fonkoze's development programs include Adult Education, Ultra-Poverty Alleviation and Boutik Sante, a health program designed to create a new business opportunity for Fonkoze's existing clients while also providing much-needed health products, services and education to rural communities throughout the country. Fonkoze is a family of three organisations working together to achieve its mission:
Fonkoze Foundation: a Haitian non-profit which provides development services such as health education, literacy and business skills training to Fonkoze's microfinance clients and to ultra-poor families. Fonkoze Financial Services: a Haitian microfinance company with a double bottom line: to lift families and communities out of poverty while operating in a financially self‐sustaining manner. Fonkoze USA, a 501(c)(3) non-profit which provides technical, communications and fundraising support in the US for its Haitian partners.
The Founding Nearly three decades ago, Haiti was a country in the midst of a struggle for freedom and equality. Its first democratically elected president was living in exile, and the country was ruled by a brutal military regime. The organised rural and urban poor — the hundreds of grassroots organisations that worked tirelessly in the late eighties and early nineties for democracy in Haiti — were especially the targets of repression. Thousands were killed during this time, and many more were living in hiding or constant fear of reprisal. This is the context of the founding of Fonkoze.
A group of leaders — led by Father Joseph Philippe, a Spiritan Priest and founder of the Peasant Association of Fondwa — envisioned a Haiti where individuals were not only given a chance at political democracy, but at economic democracy as well. They had confidence their president, Jean Bertrand Aristide, would soon be restored to power and the military regime would depart. Fr. Philippe recognized that the strong grassroots movement organized to bring about historic political change, could also be harnessed to bring about economic change on behalf of Haiti's poor.
His main concern was that, although the majority of poor people in Haiti now knew how to organize themselves politically, they knew nothing about how to organize themselves economically. Even though people might control who was president, they had no control over who ruled the economy. The poor were not allowed access to banks or to the financial services they needed to rebuild their lives and their country from the ground up.
If you were a poor peasant or “ti machann,” (woman street vendor), who had no collateral, small banking transaction sizes, and could not read or write, you were not welcome in commercial banks. A coffee cooperative, for example, could not get enough credit to buy and process coffee harvests for export and a ti machann could not get a small loan to restock her merchandise and increase the size of her business. The poor who had organised themselves to gain political power now needed to organize themselves to create a bank they could call their own.
In 1994, the founders of Fonkoze — some 32 grassroots leaders — drew up the official papers to launch their efforts, and in 1995 Fonkoze (Fondasyon Kole Zepòl, or the Shoulder-to-Shoulder Foundation) was officially recognised as a foundation under Haitian law.
The Creation of Fonkoze USA In the spring of 1996, Fonkoze organized a conference in Miami to bring together micro-credit practitioners, Haitian-Americans, and Haiti advocates to discuss how Fonkoze should be launched. The meeting was held at and in attendance were representatives of many of the Haitian communities. One of the main topics of discussion at the conference was how to finance the work of Fonkoze. Some had argued that Fonkoze should finance its loans out of the savings people put on deposit with the Organisation — just like the banks do. But others argued that it would not be right to put poor people's savings at risk and that the demand for loans would inevitably be greater than the savings Fonkoze could mobilise.
Some of the guest speakers at the conference told participants about a similarly minded organisation providing micro-credit in that received funds for its loan portfolio through a partner organisation. The participants in the conference decided they could perhaps do the same, and Fonkoze was conceived.
In the fall of 1996, a board member of the Washington Office on Haiti — Leigh Carter — agreed to take the job as executive director of Fonkoze USA, and in January 1997 Fonkoze USA held its founding board meeting. Members of the Board included a few Haitians, but also Salvadorans, Mexicans, and African Americans. It included community organisers, lawyers, religious, professors, engineers, and bankers.
Fonkoze USA was established with the mission to raise donated and invested (loaned) funds, to increase public awareness in the U.S. about its partners' work in Haiti and to provide technical assistance to its partners. Fonkoze, it was agreed, would be the main recipient of the loans and grants raised through the efforts of Fonkoze. Arnold and Porter of New York became the first pro bono legal counsel of Fonkoze USA, and organizational structures were put in place.
Fonkoze USA developed its own Disclosure Statement, Notes for a Democratic Economy in Haiti. These Notes were “sold” to individuals and organizations all over the U.S. to finance Fonkoze's loan fund in Haiti. Essentially, any individual or organization could loan Fonkoze USA funds ($1,000 minimum) for the loan fund at 0-4% interest. Fonkoze USA then re-loaned these funds to Fonkoze, and Fonkoze re-loaned them to Haiti's ti machann using the solidarity group lending method. When the loan matured, an investor could opt to receive the full amount of his/her loan with interest, or to renew the loan for continued work in Haiti.
Growing the New Institutions In Haiti, Fonkoze was not exclusively focused on credit. Fr. Joseph was determined not only to offer a full range of banking services to the organized poor of Haiti, but also to attack the problems of illiteracy and the lack of business skills among the poor. Fonkoze was unwavering in its commitment to give the poor all the tools they needed and deserved to be successful at economic development.
Fonkoze believes that its success over the years is due to solidarity from its donors, partners, clients and employees. This is the basis of Fonkoze's success. Equipped with this solidarity and a drive to succeed, the Fonkoze Family undertook tremendous growth in the early years. The organizations strongly believed if they were truly to have an impact throughout the country, and especially in the countryside where the poorest and most vulnerable lived, they needed to quickly open a branch in each department of Haiti. Balanced against this need was the length of time it took Fonkoze to develop the networks needed to quickly raise funds, and to develop the legal structures to raise investments for the loan fund. Eventually, the two tracks began to coincide.
Once Fonkoze made its first offering of Notes for a Democratic Economy in Haiti in the winter of 1998, the loan fund began to grow rapidly. Leigh Carter was diagnosed with breast cancer, but continued to work during recovery. Fueled by a network of religious alternative investors and concerned individuals all over the U.S., the loan fund reached more than a half million dollars by 1998. Fonkoze opened 15 branch offices by the end of the same year. Donations from individuals and organizations to Fonkoze USA and directly to Fonkoze in Haiti began to appear. These funded the expenses not yet covered by Fonkoze's own financial activities, as well as its educational programs.
By 1998, Fonkoze had strong programs and activities consisting of:
Solidarity group micro-credit loans to expand a business; Business development loans to small micro-entrepreneurs, or small and growing businesses; A money transfer service; Currency exchange services; A multi-faceted program of savings; Training programs abroad for employees; and Literacy and business skills training
At the end of 1998, Fonkoze had 645 member organizations, 5,134 savings accounts with total deposits of 9,878,735 gourds (almost US$600,000), 2,607 group borrowers with the total volume of outstanding loans at 7,038,578 gourds (about $US426,580). They had 15 branches, and 101 employees. In addition to important donors and investors, Fonkoze was fortunate to have dedicated partners in its early development, including Arnold & Porter, Fairfield University School of Business, Duquesne University, and City National Bank of New Jersey. In-kind technical assistance was key to assisting the staff of Fonkoze to attack the learning gap they were facing, and be able to offer professional, high-quality, financial services to the poor.
Resolving the Financing Dilemma Professionalization and growth continued throughout 1998, 1999, and 2000. As Fonkoze faced the new millennium, however, it became evident a new path was necessary. The financing mechanism Fonkoze had been Utilizing—low-interest loans from abroad and donations—no longer seemed to be a viable long-term strategy for the simple reason that the gourds were no longer stable. Fonkoze was borrowing in dollars and lending in gourdes. When the gourde began to devalue rapidly beginning in the year 2000, it was clear that when it came time to repay the loans in dollars, the gourdes would no longer have the same value and there would be a shortfall in Fonkoze's ability to repay. Raising funds for the non-financial services was also a challenge.
While the organization had come a long way, it seemed Fonkoze's dream of sustainability (at least for its financial services work) was always just out of reach. There was simply not enough capital to reach the scale that would be necessary to make the institution profitable. With a network of 15 branches, Fonkoze's capacity clearly outstripped its capital base—and its capital base consisted of 100% debt. Another financing strategy would have to be devised.
Other foundations and microcredit institutions throughout the developing world dealt with the same dilemma as Fonkoze. Prodem in Bolivia, the Grameen Bank in Bangladesh, and CARD in the Philippines all made the transition to full-fledged microcredit commercial banks, yet had begun as foundations or not-for-profits in their respective countries. As Fonkoze began to study their model of development, they discovered that in each case, the organization was driven by the same challenges of sustainability, scale, and capital.
It was at this time that Gordon McCormick, a Fonkoze USA major donor and Wall Street investment banker, became an active part of the team to shape Fonkoze's future. He and Anne both believed that private capital could be accessed to tackle the problem of poverty in Haiti. Together, they set about to do just that by actively visualizing what it would take to create a solid financial base from which the institution could grow. One thing was evident — Fonkoze was having no trouble mobilizing savings in the communities in which it was operating. Every year, since 1996, the volume of savings had more than doubled. By the end of the year 2000 it stood at almost US$2 million. With a commercial bank license, Fonkoze would be able to access those deposits for lending. If they could add to that another $2-$3 million in capital from abroad, Fonkoze would have a stable base from which to reach scale.