It has been a few weeks since I have posted on this blog, but I have continued to study and to work inside Fonkoze all along. Now I feel like I finally have a juicy topic to write about and time to do so.
In response to my post on outcomes and impact (as opposed to inputs) in poverty reduction programs, Meredith Kimbell, a top-notch management consultant in the Washington, DC area whom I have known for years, mentioned the book Better by a physician named Atul Gawande, and in particular a chapter towards the end titled “The Bell Curve.” I read the entire book, which is basically about how the practice of medicine has been and can be improved (with lessons for other disciplines). I found that the book had some important lessons for the effort to end poverty through holistic approaches to microfinance such as those employed by Fonkoze.
The first third of the book is made up of some powerful examples of how medicine has improved, from the mundane (ensuring hospital staff wash their hands more frequently) to the dramatic (the story behind the massive improvements in battlefield medicine through trial and error-based innovation and rigorous quality control). The main lesson I took away from this section was that significant improvement in performance can be realized simply by more rigorously applying known best practices. Certainly this has applications to microfinance and poverty-fighting generally.
The book got me thinking about what would happen if every organization providing services to the poor (a) catalogued the five most powerful lessons they had learned for achieving positive outcomes, (b) put in place a high-level team hell-bent on ensuring they were integrated into everyday practice from top to bottom, and (c) made sure that staff were measured and rewarded on their success in doing so. Probably we could have a major impact without any new innovations or resource commitments to poverty alleviation.
The middle third of the book deals with topical issues in the medical profession – the fairness of the compensation doctors receive, malpractice insurance and lawsuits, and the ethics of physicians being involved in administering the death penalty. Interesting perhaps, but not so relevant to this project.
The last third of the book is most interesting. The two themes that stood out were:
- The power of measuring results and enabling benchmarking of effectiveness in spurring improved outcomes.
- A key distinguishing factor between good and great: in the latter case, the practitioner is both extremely rigorous, pushes his partners (in this case, patients) and “does not hesitate to improvise.”
Fonkoze, and many microfinance organizations committed to the being double-bottom line institutions, are committed to rigorous measurement and also openly sharing their results with the outside world. I also see in Fonkoze’s Chemen Lavi Miyo (“Pathway to a Better Life”) program for the ultra-poor success in delivering exceptionally high quality services to the most vulnerable through an asset-transfer and case-management approach adapted from BRAC. (I also hear echoes of Paul Farmer’s values, and how they have been embedded in Partners in Health — an organization I have blogged about previously in how it relates to Fonkoze.) But let me go back to the book.
On the power of measurement, Gawande describes the development of the Apgar score (named after Dr. Virginia Apgar, one of the few female physicians practicing in the 1930s). The score is a simple tool to assess on a scale of 1 to 10 the well-being of a newborn child at two moments in time — one minute and five minutes after birth. The development of the score – which has many parallels with the Progress out of Poverty Index that is incorporated into Fonkoze’s social performance tool – allowed hospitals to compare survival rates of children in similar circumstances.
The simplicity and clarity of the Apgar score revealed wide variations in results among hospitals, which led to feverish and productive efforts to study what worked and also to develop better approaches, and then to apply emerging best practices. This invariably led to the improvement of survival rates for newborns with comparable Apgar scores. Prior to the development of the scoring tool, hospitals with lower survival rates were able to blame the health of the mother and newborn as the main factors, rather than their own performance.
The second main message about “good vs. great” comes from the history of the treatment of cystic fibrosis, and has a performance measurement element to it. The author bridges the subjects with these words: “Finding a meaningful way to measure performance, as Virginia Apgar showed was possible in child delivery, is a form of ingenuity in itself. What you actually do with that measure involves another type of ingenuity, however, and improvement ultimately depends on both kinds.”
In the 1960s, a pediatrician named LeRoy Matthews was claiming to have off the charts results in treating cystic fibrosis (CF) patients, and as often happens in such cases, he “was driving people in his field crazy.” Doubtless, people who were achieving more traditional outcomes thought he was cooking the books. Then a doctor named Warren Warwick raised $10,000 “to collect reports on every patient treated at the thirty-one CF centers” in the country, in part to test Matthews claims. The research confirmed Matthew’s claims. Over time, his techniques were copied and the database on clients that was begun by Dr. Warwick was taken up by the Cystic Fibrosis Foundation, which maintains it to the present day.
While Matthews methods were copied by many, leading to significant improvements, only a few were able to match his results. One of those was Warwick, the doctor who did the study that confirmed Matthews results. Gawande visited several CF clinics, including some that were trying mightily to improve their outcomes using the Matthews/Warwick techniques, and was impressed despite their middling performance. Then he visited Warwick’s clinic and was astounded by its total dedication to doing everything possible, including things that had not been proven effective yet but had satisfied them through their trial and error approach, to help patients. No stone was left unturned. There was no muddling through or “phoning it in” at all. Patients themselves were challenged to step up and take more responsibility for their own treatment through highly customized case management.
As I read this section, I repeatedly thought of Gauthier Dieudonne and his team at Fonkoze and the intensive services they provide to CLM clients — services that have led to an astounding 96% success rate.
There is one final interesting part of the CF story. The book begins the CF topic with a hospital that was achieving average scores in terms of patient outcomes. They knew this because of the data that was collected and published, but they could not find out which hospitals were the top performers because the outcomes were anonymized. After a major campaign to disclose which hospitals were doing the best, the Cystic Fibrosis Foundation did so – which enabled people to know that Dr. Warwick’s clinic was among the best. As a result it was intensively studied and visited in order to glean best practices and understand what separated “good” from “great.” Over time, the Foundation decided to publish all the outcome data, even for the worst performing hospitals. This “radical transparency” and focus on outcomes (and benchmarking) clearly has improved the health of patients suffering from cystic fibrosis.
It is not difficult to imagine the same dynamic developing in microfinance and more broadly, in international poverty alleviation, if we have the courage to change our ways.
I have appreciated the feedback on my most recent post on this blog about outcomes and impact, using Dean Karlan’s new book and Fonkoze’s social performance report as points of departure. I have just posted something related to Karlan’s book’s treatment of microfinance on the Center for Financial Inclusion blog and it is now cross-referenced with the blog below. (Originally I wrote one very long review and later decided to split it into two.) Enjoy! And as always I welcome feedback.
Fonkoze is unique among microfinance institutions (MFIs) in terms of the human and financial resources it devotes to evaluating the effectiveness of its programs, and then using those findings to improve services to Haiti’s poor. Its annual social performance report is a model for other institutions. While Fonkoze’s approach goes beyond most MFIs, it is part of a broader trend of measuring outputs and impact, rather than simply inputs (such as loans disbursed in microfinance, or number of schools built as a measure of promoting better education), when tracking the progress of poverty alleviation efforts.
This is a healthy development. Academics are making significant contributions to this new trend. One of the leaders of this in the research community is Dean Karlan, who works hard to make information about impact understandable and actionable for the general public who donate generously to poverty alleviation efforts worldwide. His new book Beyond Good Intentions, co-authored with Jacob Appel, helps accelerate this trend.
Karlan is a serious thinker who is committed to effectively combating poverty, but who has a tendency to come a bit unhinged when speaking and writing about microfinance (even though he makes some excellent points about even that issue). His strengths have prompted Grameen Foundation, which I lead, to engage him and his organization Innovations for Poverty Action to conduct research on our work also serve as an advisor. We are a better organization as a result of his engagement with us, and our social performance management center is taking his ideas and others and applying them across the microfinance industry and beyond. (I have written about the half of the book dealing with microfinance elsewhere.)
What did I like about the book? Let me first describe its structure. Each chapter takes on an important subject related to poverty reduction and starts with a thought-provoking anecdote (usually involving Karlan’s co-author and someone he met in Africa or Asia), poses some interesting questions, describes a randomized control trial (RCT) analysis to test them, and then shares the results – regardless of whether they are definitive or not, or whether they agree with past studies or the authors preconceptions or not. All of this is done in clear prose.
In other words, the authors take us through a journey of learning about what actually works in poverty alleviation, at least in certain contexts, and for the most part they include caveats about how much individual findings can be generalized and what remains unanswered.
The book has some remarkable strengths and findings. It very effectively emphasizes the power of behavioral economics in crafting potent anti-poverty programs. It details, among other things, how people (whether rich or poor) often do not act rationally, even though many poverty programs are built on assumptions that they are. In one case, advertisements for consumer loans worked better when prospective clients were offered one option rather than four, leading to the surprising conclusion that “…presenting more options actually drove away customers [which] directly opposed standard economic theory…” This may not be news to those in marketing in the business world, but it certainly is to many who design poverty reduction programs.
The authors describe research that puts to rest the long-standing debate about whether it is more cost-effective to give away insecticide-treated bednets compared to subsidizing their cost. (The idea that if people get bednets for free they don’t value and use them as much as if they pay for them turns out not to be correct. However, charging for it does decrease uptake significantly since many people choose not to buy it even at a subsidized rate, but will accept one if it is donated.)
Another important observation is related to research technique. The authors explain that people are unlikely to reveal “sensitive truths” (related to, say, their sex lives or their incomes) if asked directly. (In fact, in my experience, they are likely to lie.) However, there is usually a way to get this information. “The trick,” the authors write, “is realizing that people are willing to reveal sensitive truths as long as they can hide them in a cloud of mundane ones.” They go on to explain how they have done this, and in so doing raise the confidence level of the reader in the research presented throughout the book. As someone who has spent more than two decades interviewing microfinance clients and other poor people, from both my mistakes and learnings I can confirm this simple but powerful observation.
In another case, they studied the power of making minor modifications to delivering or marketing a service. For example, tax filers in the U.S. who were offered a match on their IRA contributions took up the offer at almost double the rate as those who had the same opportunity but had it presented to them as a rebate. In a world where the poor often befuddle development planners by not taking up opportunities designed to help them, this is a profound insight. (Though, equally as important, in another case they cite research showing that African farmers decision not to buy and use fertilizer recommended by their government is entirely rational and in their best interests.)
They found business training for microentrepreneurs, much maligned for years but now experiencing something of a comeback, can be effective, especially when “rule of thumb” training techniques are used instead of standard accounting training – an idea being championed now by the organization ideas42.
The authors cite other research showing that the timing of providing a coupon to subsidize fertilizer purchase, or the location of a dispenser to put purifying chlorine drops into drinking water that village women collected, significantly improved uptake. Finally, in their effort to find things that improve educational performance, the authors sift through the available research and find that by far most cost-effective way to improve learning (at least in western Kenya) was to make deworming pills available to students for free, though other approaches appeared to work well even though their costs were higher.
In another study, simple reminders sent by SMS or snail mail to encourage people to save were remarkably cost-effective: the incurred very little expense by the financial institution, while causing clients to save more, met savings goals more frequently, and in the process grow the institution’s deposit base. And in a finding that could have profound implications for MFIs seeking to customize products cost-effectively, simple tests of cognitive ability proved to be “a strong predictor for high business returns.” And in the final chapter the authors helpfully make the case that the percentage of a non-profit organization’s funds spent on administrative costs is “a really bad metric”.
Accountability for results in international development is still more talked about than practiced, but it is likely here to stay. That is a good thing. More Than Good Intentions is an important contribution to this process. Its ideas are most powerful when they are used and informed by practitioners who are themselves deeply curious about their own (and others) outcomes and impact so that they can rapidly move from things that do not work to things that do, and from things that work reasonably well to things that are pro-poor “home runs”. Fonkoze can proudly stake a claim to being one of those organizations.
Many of us involved in microfinance have long realized that government policies towards microfinance institutions (MFIs) and their clients matter. But the experience of the last few years has dramatically illustrated this reality.
Previously, I have reflected on the upheaval in the Indian microfinance sector – with one state (home to the largest number of microfinance clients) passing a draconian anti-microfinance law, while the federal government has announced a strange mix of helpful, stabilizing, unrealistic, and contradictory polices. I have compared this dynamic to the situation (and possible futures) of microfinance in Haiti.
Since then I attended and gave a keynote address at a meeting of Sa-Dhan, the oldest and largest microfinance association in India. It was an energizing (and sobering) experience that I have just written about on the Grameen Foundation blog.
At the same time, I have learned of several overtures that the Haitian government has made to Fonkoze, Haiti’s leading MFI, to collaborate. My first inkling of this interest was when I attended a meeting with the then-Prime Minister of Haiti in September 2011. When we were waiting for the PM to finish a phone call and join the meeting, a Senator from the Central Plateau told the group how much he admired Fonkoze’s program for the ultra-poor after I introduced myself and my role in Fonkoze USA. Depending on how such a collaboration was structured and implemented, it could be a great leveraging of strengths, or a disaster. But at least the government is showing interest (though no major initiatives have been agreed upon yet).
Both the Indian and Haitian Parliaments are in the process of considering new legislation to regulate microfinance. In India it has been drafted by a Parliamentary committee, while in Haiti is being developed by the Central Bank. In both cases, technocrats who understand microfinance have dominated the drafting process based on what I have heard. But even if this is the case, the potential for microfinance to become political football that elected leaders can demagogue for their own benefit is real – as we have seen so dramatically in the case of the Andhra Pradesh Parliament’s law.
The federal legislation in India gives the Reserve Bank of India powers to regulate microfinance as it sees fit – powers that the RBI does not seem to want. The RBI’s uneven reaction includes signals that it wants MFIs to become banks or business correspondents for banks – neither of which are realistic options for most microlenders. At the same time, RBI representatives imply that the unrealistic/impractical policies can be revisted in the months ahead (giving practitioners some hope).
One of the most poignant moments in the Sa-Dhan conference was when Vijay Mahajan, the founder of BASIX, termed the actions of the AP government – which has destroyed a growing number of institutions and, according to recent research, driven many poor families back into the clutches of loansharks – as “Financial Vandalism.” In fact, he is actually calling for a constitutional amendment to outlaw politicians from advocating the borrowers not repay loans they have taken out from financial institutions like MFIs. I think he is serious!
Mathew Titus, the head of Sa-Dhan, asked for my speech and later many others did. My focus was not so much on what government should do, but rather on how MFIs in India (and beyond) should reform themselves to leverage existing strengths, do better by clients, and make it easier for politicians to actively support them.
I have been pleased with the wide readership my blog on the India microfinance crisis has gained, second only to my post on the Fonkoze/Partners in Health alliance. The India post, the reaction to it, and some writing I have been doing this week have prompted me to think about what distinguishes the Bangladeshi microfinance leaders (Grameen Bank and BRAC), and what they share in common with Fonkoze. (I have long been associated with Grameen, and I have recently read the definitive book on BRAC, “Freedom From Want” by Ian Smillie, which while annoying in some of its references to microfinance and Grameen, is an impressive tour de force of BRAC’s history that is refreshingly honest about some of its failures. (Another organization that could be put in this group is SEWA Bank, but that is beyond the scope of this post.)
Grameen Bank and BRAC realize that microcredit can be a powerful tool, but it is best thought of as the foundation of a holistic development strategy – one that should no more be relied upon entirely to get people out of poverty than a builder would finish with the foundation of a house and neglect adding walls and a roof. This insight led to decades of experimentation with financial products beyond credit, as well as non-financial products. Many of the latter were implemented through co-branded companies, especially in the case of Grameen. (Grameen Foundation commissioned a paper on the “Grameen Family of Companies” and their track record through 2009.)
Not all financial products succeeded, nor did all the non-financial products/initiatives/companies. A few failed miserably. But many evolved into world-class offerings to help the poor do more than they could with credit alone. CARD in the Philippines, through its “Mutually Reinforcing Institutions” or “MRI”, followed a similar course, as did Fonkoze through the establishment of the original non-profit, Fondayson Kole Zepol (Fonkoze), followed by Fonkoze USA, Sevis Finansye Fonkoze (and a related holding company, Fonkoze SA), and finally MiCRO, a microinsurance joint venture involving Mercy Corps and SwissRe. (For a thoughtful analysis of the concept of microfinance as delivery channel for other empowering products to the poor, see the Grameen Foundation white paper “Microfinance: A Platform for Social Change” by former Citibank executive Marge Magner, which is also available in Spanish.)
Another common element among these organizations’ DNA is their commitment to measuring how effective they have been so that they can ensure continuous improvement in their poverty alleviation efforts. Grameen’s Ten Indicators of Poverty was the prototype for the Progress out of Poverty Index® now available in 45 countries and that is used by both CARD (the leading MFI in the Philippines) and Fonkoze (and hundreds of other MFIs in addition to many other poverty-fighting initiatives not involving finance). Chris Dunford, who until last year was the CEO of Freedom From Hunger, made the case for the PPI as effectively as I have ever heard in a recent speech where he explained the power of combining it with other tools (such as FFH’s Food Security Index), as Fonkoze has done. For its part, BRAC has long emphasized monitoring and evaluation, as Smillie’s book describes in detail.
Finally, all of these organizations understand the importance of shared leadership. As a result, they spawn multiple companies each with CEOs empowered to make decisions and even negotiate hard with each another. I recall an instance about five years ago when I was trying to entice a Grameen Foundation donor to invest in the bank being spun off by a successful microfinance NGO. She read the business plan and declined to invest, citing the fact that the founder of the NGO was going to retain a large degree of control of the bank (and any other institutions that would be established later). She compared this model unfavorably to CARD’s, which she knew well, and how CARD has five organizations each with a strong leader.
I am writing this book on Fonkoze as someone who is involved in a governance role in one of the family of organizations. (I have served as Chairman of Fonkoze USA since November 2009, weeks before the fateful earthquake as it turned out.) This has made the job of writing a book easier, and harder, as one might expect. In my role as Chairman, and as Vice-Chair before that, I occasionally argued for establishing some kind of coordinating body to oversee the entire family of Fonkoze organizations – perhaps made up of the Chairs and CEOs each institution.
This past February, Fonkoze’s leaders in Haiti called together about two dozen senior staff, board members and investors for a retreat in Haiti. One of the key outcomes of that meeting was to set up something called the “Fonkoze Family Coordinating Committee” or FFCC. (Some wanted to call it the “Super Committee,” but I resisted that and anything that suggested that this was supplanting the other boards.) I was asked to Co-Chair the committee along with a humble, savvy and deeply religious businessman named Julian Schroeder. It has been a challenge, and an honor. One of the interesting things about the group is that it has been delegated no formal decision-making authority, but its recommendations are often adopted by the member organizations.
As one might expect, looking across all the Fonkoze organizations, some things look better than from a single organization perspective, and some look worse. The analysis the FFCC has done – based on requests made that the staff have been very responsive to – has revealed new opportunities to be seized, and new problems to be tackled. Now the challenge is to use this holistic analysis to strengthen Fonkoze as it contemplates the daunting work ahead.
I was prompted to start researching a book about Fonkoze when this microfinance/development institution – Haiti’s largest in terms of number of clients – willed itself back into existence and relevance within days of the devastating earthquake in January 2010. In time, donors with pockets deep and otherwise helped bankroll the revival strategy, but in its early days it was the sheer force of a few leaders’ wills imposing itself on a future that was uncertain to say the least.
Well, this project has taken a detour to visit the scenes of two other disasters that hit leading microfinance institutions (MFIs) in 2010 – though these were far from natural, but rather socio-political in nature. The governments of Bangladesh and the Indian state of Andhra Pradesh (AP) took aim at a leading MFI (in the case of Bangladesh) and the entire sector (in AP). Unraveling these two temblors seems important to understanding Fonkoze’s past, present and future. So I travelled to Bangladesh and India to start part two of my sabbatical in order to learn more.
I have already written about my impressions of Bangladesh, so let me turn now to India. Much has been written about the microfinance crisis there. For my part, I have made public statements about it, transcribed and released of my debate with SKS founder Vikram Akula at the Asia Society (which took place at the outset of the crisis), and addressed the issue in the opening section of my chapter in New Pathways out of Poverty (the Spanish and French versions of which are freely available, as they are not protected by copyright). David Roodman gave an impressive account of the crisis in his book Due Diligence, which I have reviewed (a review to which Roodman thoughtfully responded).
However, when I went to India I tried to free myself from preconceptions, and attempted to listen and observe with an open mind. I met with leaders of MFIs large and small, as well as other members of the ecosystem including consulting firms, industry associations, and the staff of Grameen Foundation’s wholly owned subsidiary Grameen Foundation India and our joint venture Grameen Capital India (both of which are organized as social businesses as per Professor Muhammad Yunus’ definition). Below is a list of eight things I learned that I did not know, or believe, before I arrived:
- Despite recent progress in terms of returning the sector to normalcy outside AP, and in advancing legislation that is flawed but still a net positive, I heard from multiple sources that that state government of Tamil Nadu is considering an AP-type of ordinance that would throw the Indian microfinance sector into a new and probably much deeper crisis. Stay tuned!
- At the height of the frenzied growth during the period 2007-10, many MFI field officers came to rely on so-called “agents” (also known as “ringleaders”) at the village level who took on many of the functions of staff. In effect, field staff were outsourcing their client recruitment and loan underwriting responsibilities. This was a ticking time bomb, as the MFIs effectively lost control of their own activities, most importantly in terms of their relationships with loan clients. The reasons for this probably include the lack of training given to the new recruits of fast-growing MFIs, and the impossibility of managing as many clients as staff were expected to serve (based on unrealistic targets that were the basis for awarding generous bonuses) using the traditional approach. It is not clear that MFI leaders were aware that this was going on, or whether they just turned a blind eye.
- I was aware that most of the smaller AP MFIs who do not have operations outside the state have effectively gone bankrupt. What I learned from sitting down with four leaders of these now defunct institutions – who predictably though plausibly claim to have been largely innocent of the abuses committed by the larger MFIs based in the state – is that two AP MFI promoters (i.e., founders) who were distraught by their life’s work being ruined have recently committed suicide, and more are feared.
- Another thing I learned while speaking to the smaller MFIs is that they are now being sued by Ananya, a non-bank finance company set up by the respected wholesale lender Friends of Women’s World Banking. (The CEOs came from across the state to meet with me on the day when they were consulting with their legal advisors.) They claimed that they needed to dig into their dwindling personal assets to hire lawyers. I was told by others that Ananya is being required to file these suits as part of its own difficult negotiations with its lenders.
- At least one large AP MFI is optimistic about the future, feeling that it can recover 50-70% of its portfolio once the AP Ordinance is repealed (which would likely happen as a consequence of federal legislation being enacted later this year, though perhaps only after India’s Supreme Court gets involved) and it can issue fresh loans to those who pay off arrears. Based on a two-hour session with about 20 clients (pictured below) handpicked by this MFI for me to talk to, it is difficult to dismiss this claim despite conventional wisdom that holds that AP portfolios are unrecoverable. (One client, Devamma, was particularly articulate in praising her MFI and blaming the local political leaders, bureaucrats and moneylenders who conspired to shut it down.)
- Many have noted that MFIs should have been more actively engaged in building bridges with local politicians and bureaucrats. What I heard for the first time was that MFIs also have learned how important it is to pay attention to members of the media. Among the many criticisms of SKS and its public offering – which most agree was a catalytic event that transformed animosity into confrontation – is that it failed to spend much if any of its pre-IPO advertising budget in its home state (preferring instead to spend it where it believed the investors were, namely in Mumbai and in the state of Gujarat).
- Many have noted that the perception and/or reality of good ‘ole greed on the part of MFI investors and management played a role in precipitating the crisis. What I heard for the first time is that greed on the part of clients themselves may have played a role (though some dispute this). The argument is that many borrowers – unfortunately and tellingly, none were savers – knew they were getting into too much debt but reasoned that since everyone else was, the loans were ultimately going to be forgiven somehow (as has often happened in India, especially in the case of government loan programs). So, they took as much as they could and pressured people who wanted to repay not to do so.
- Many have also noted that MFI clients did not rally and protest against the anti-MFI Ordinance. The reasons typically cited are that borrowers did not feel a strong bond to their MFI(s) and perhaps resented their poor service. Based on my point immediately above, one could also argue that they simply liked the idea of not having to repay their loans. However, there is a much easier explanation: that they saw a fight brewing between the private MFIs and the state government, were effectively forced to pick sides, and picked the stronger party (the government) since it was likely to prevail. They reasonably concluded that being aligned with the losing side might carry risks of reprisal well into the future.
There is another reason I am trying to get to the bottom of this crisis. I have been asked to address the closing session of the Indian microfinance association Sa-Dhan’s annual conference in August, which is a major honor especially for a foreigner. (Increasingly self-confident Indians are more likely than ever to resist solutions, ideas and models implanted from outside the country.) The topic for the closing session is the future of microfinance in India, and I welcome input from loyal blog readers for my remarks.
What does all this mean for Fonkoze? With one possible exception that is years old and was brief, Fonkoze never got caught up in growth for growth’s sake, especially growth that led to cutting corners on staff training, outsourcing key functions to local “agents,” and stripping down product offerings. In terms of building bridges with local media, government officials and politicians, Fonkoze has recently stepped up its outreach. But will it be enough to prevent some future backlash along the lines of what we have seen in Bangladesh and India (and other mature markets such as Bolivia)? Only time will tell.
South Asian microfinance has had a major influence on Fonkoze and its work in Haiti. BRAC’s models and people have had especially large impacts, but Grameen Bank has also been studied and its people brought to Haiti for input. Today, as South Asian microfinance faces crises that some say are existential, it is worth asking what the lessons are for Fonkoze. I have just wrapped up a trip here and below is part one of my reflections. As I sit down to compose this I am reminded of these words of a Middle Eastern diplomat: “You can always count on government to do the right thing. But only after it has exhausted all other possibilities.”
One of the things that spurred me to write a book on Fonkoze was that while the organization was little known outside Haiti and a small community of social investors, microfinance professionals, and Haiti solidarity activists, it represented a shining example of what was right about microfinance at a time when the industry was coming under some intense criticism (some of which was justified, even though much of it was exaggerated) and attack.
I have taken some time off again this summer from my “day job” at Grameen Foundation to work on this project. Instead of going straight to Haiti (which I will do in a few weeks), I travelled first to Bangladesh and India. These two South Asian countries have been “ground zero” for microfinance controversy and crisis over the past 24 months (and for achievement over the last two decades). I wanted to probe deeper into what was going on even as I contemplated the example of Fonkoze.
For those of you who have not been following these stories, here are the basics. Since late November 2011, the current elected government of Bangladesh and its allies in the media have been consistently hostile to the Grameen Bank, the Grameen family of companies, and Professor Muhammad Yunus. (Grameen Bank and Prof. Yunus shared the Nobel Peace Prize in 2006.) While the government’s attempts to convince people that Dr. Yunus and the organizations he created are in some way corrupt have failed, they did succeed in having Dr. Yunus removed from his post as Managing Director in May 2011 on a technicality of dubious legality. Furthermore, they have been laying the groundwork for taking over control of Grameen Bank and the most successful of the other Grameen companies, despite the recent plea made by Professor Yunus to forsake this path. The government has been far from supportive of the other microfinance institutions in the country, but Grameen has been singled out. Friends of Grameen, an international solidarity group working to preserve Grameen Bank’s independence, has written a short summary of these issues.
In India, the southern state of Andhra Pradesh (AP) has been the hotbed of microfinance controversy. The local government basically outlawed microfinance provided by private organizations in late 2010, which led to the collapse of both nongovernmental and (in time) public sector microfinance – leading clients inevitably back to moneylenders. It also caused funds to dry up for microfinance across the country, as investors and lenders feared contagion. What prompted this draconian law? As best I could tell before I arrived here a few days ago, there were several factors:
- The state government was looking for a scapegoat for the failings of its public sector microfinance initiatives and also the alarming number of farmer suicides (though some politicians were probably well-intentioned, thinking that by reigning in private sector microfinance they were in fact protecting the poor from unacceptably high interest rates).
- The public offering of the giant MFI SKS, which initially created a lot of wealth for the senior staff and investors in that MFI (but none for its clients), inflamed opposition to microfinance in general.
- There were some legitimate cases of abuse by MFIs in terms of their collection practices, mainly committed by undertrained staff who were under pressure to recover loans in an increasingly competitive landscape. (The fact that these abuses were exaggerated and sensationalized does not excuse them.)
As a result, microfinance in AP ground to a halt – one could say it basically vanished overnight – and in the rest of the country, it survived but had to contract significantly. As one might expect, the poor were the primary victims of this political confrontation.
Well, what did I see and learn on my trip to South Asia? In Bangladesh, these were my main take-aways:
- The government’s troubles extend far beyond its confrontation with Grameen. While I was there, the World Bank cancelled at $1.2 billion loan to help finance the Padma Bridge project. They cited credible evidence of high level corruption which they had given the government many months to address before finally cancelling the financing. The government called the Bank’s review process flawed and asked incoming World Bank president Jim Kim to rescind the decision, which he immediately said he would not do.
- The elected representatives of the borrowers of Grameen, who make up 9 of the 12 voting members of the bank’s board of directors, are passionate and articulate defenders of the organization. They, and the immediate past directors whose terms ended in February, spoke up at Social Business Day that I attended. Many voiced their commitment to Grameen’s independence through tears as they spoke, one by one, in front of about 700 attendees. They warned the government that elections were coming and that the 8.3 million women of Grameen were not a force to be ignored.
- International solidarity does help. While I was there, a letter from all 17 female members of the U.S. Senate was delivered to the Prime Minister and covered extensively in the local media including the Daily Star. It put the issue of Grameen’s independence in the context of women’s rights, noting that Grameen was the largest organization in the world owned by poor women and that its take-over by the government would represent a major blow to women’s rights worldwide.
- Despite all the difficulties, Grameen Bank is hanging on. I visited a branch that had historically been relatively weak but was located in a stronger performing zone – the branch that was the focus of my book Small Loans, Big Dreams. (I had been told that weak zones were deteriorating quickly and stronger zones much more slowly during this uncertain period – so this branch seemed a good litmus test.) While I could see how the crisis had negatively impacted the branch in many ways, there was surprising resilience. The branch was due to show a modest profit of about Tk. 610,000 (US$ 7,500) for the first half of the year. Loan disbursements and collections were taking place more or less normally. When asked, Shandha Rani Halder, a borrower featured in my book whom I have known for almost 20 years, said, “It will take more than any government can do to ruin Grameen Bank. We are much stronger than that.” The local branch manager bravely (if not entirely convincingly) said, “These controversies impact our head office. But they do not affect what happens in the zones and the branches at all. We keep on with our mission.”
Some key questions are:
- Will the Haitian government, which is finalizing a bill to regulate microfinance that it hopes to introduce in Parliament, ever assume a confrontational posture with respect to Fonkoze? (The legislation itself, if passed, could have positive or negative impacts on Fonkoze – most likely a combination.)
- If a confrontation ever comes to pass, how will the women clients of Fonkoze stand up for their institution? Will they be as bold as the women of Grameen? Or even bolder?
- What could Fonkoze’s international friends do in such a situation? Would U.S. Senators take the same kind of initiative as they did in defense of Grameen? Would it matter?
These are the kinds of things that keep microfinance leaders up at night in these turbulent times, and the top executives at Fonkoze are probably no exception. Being able to plan and act for maximizing client benefit while worrying about these issues is no mean feat. But it is what Fonkoze’s leaders do every day.
To be continued…
In my rush to complete and publish the posting on the Social Performance Task Force (SPTF) and so forth, I left out a few sentences somehow. The first few included reference to the fact that Fonkoze’s fingerprints were all over the “universal standards for social for social performance management” in ways that I did not mention elsewhere. For example, Leah Nedderman Wardle, the former director of Fonkoze’s social performance unit, is the deputy director of the SPTF and as such her experiences at Fonkoze certainly helped shape the standards. Natalie Domond, Leah’s Haitian-American successor at Fonkoze, also participated in working groups involved in crafting the six standards and the 99 essential practices they encompass. Appropriately, both Leah and Natalie were at the meetings last week in Jordan to witness the final outcome of their efforts.
Later in the blog I had meant to add, when writing about the human resource challenges that Fonkoze has, that the institution’s inability to keep people as talented as Leah and Natalie working in Haiti for more than a couple of years was emblematic of what Fonkoze is up against. Conversely, it makes one appreciate the commitment and sacrifice of a handful of hardy people — whether expatriates or Haitians with the option to work internationally in gentler environments – who have served with Fonkoze in Haiti for long periods.
Some years ago I was in a discussion with Anne Hastings in northern Haiti about Fonkoze. Our chat veered from fund-raising challenges to organizational purpose. It was wide-ranging and I think some white wine was involved. Anyway, Anne (who I profiled in four blog posts that began with this one) was talking about many of the things that Fonkoze was pioneering on the ground in Haiti, and also about the international task forces she was participating in at the time. At one point I said something like, “We all know that Fonkoze is not simply a microfinance institution for Haiti’s poor. At its best it is a comprehensive solution that includes but goes far beyond, but includes, financial services. But what I think we fail to appreciate is how much Fonkoze has become a ‘center of excellence’ for developing effective poverty reduction solutions that can be applied globally.” Anne was taken by the idea and even tried to fund-raise based on it in the months that followed.
As the largest MFI in the poorest country closest to the world’s richest one, Fonkoze has a unique role to play in drawing attention to innovative ideas in poverty reduction. Many times I have heard people say, “If Fonkoze can make that work in Haiti, why on earth won’t it work here?” Indeed.
Because she and her team have made microfinance (and related strategies) work in such a harsh environment, Anne is often asked to serve on international task forces and speak at conferences related to innovation in poverty reduction. (Other senior staff of Fonkoze play this role, though to a lesser degree.) While these commitments of Anne’s time may take away from her management responsibilities in Haiti to some extent, they are an important part of the mark that Fonkoze will leave on the world over the long term.
Last week I was at a conference in Jordan with Anne. It was the annual meeting of the Social Performance Task Force (SPTF), which sets standards and identifies best practices for poverty reduction in microfinance. Anne serves on various leadership bodies in the SPTF and was part of the core group that developed the “universal standards for social performance management” that were finalized and announced at the conference. Her participation in the group that made this happen – a process that included extensive consultation with thousands of people around the world — gave the final standards enhanced credibility, and will help drive widespread adoption and presumably, better results. (My employer, Grameen Foundation, has also been quite active on the SPTF.)
Embedded in the standards are the Client Protection Principles being championed by the Smart Campaign, which is based in the Center for Financial Inclusion. These principles define what an MFI must do to ensure that its policies and practices do not systematically do harm – even unintentionally – to poor clients. It is a kind of “code of ethics” and is extremely important today, as a few unsavory people and organizations have started to call what they do “microfinance.”
Surprise, surprise – Anne is on the Steering Committee for the Smart Campaign as well. Beth Rhyne, the director of the Center, mentioned to me when reviewing a draft of this blog that Fonkoze has been a practice leader in implementing the principles from the beginning. She wrote, “Fonkoze is one of the organizations that stepped up right away to create client service desks at Fonkoze branches to make sure that clients have a trusted place to go if they have any kind of problem or uncertainty about their work with Fonkoze.”
Fonkoze is working to develop a new generation of Haitian leaders to progressively take over the day-to-day management of the non-profit Fondayson and the for-profit Fonkoze Financial Services (SFF based on its Creole acronym) so that Anne and other current leaders, especially expatriates with international reputations, can focus more on these types of global impact opportunities. The faster they succeed, the larger Fonkoze’s global impact will be.
People often talk about how much the world gives to Haiti. By some measures it does give a lot. What I have come to see is that Haiti also has a lot to give to the world, and in some areas already does so. But its ability to give more comes down to that age-old question – how to attract, motivate and retain human capital, i.e., talent. Fonkoze’s success in addressing its human capital needs will go a long way to determining its ultimate impact in Haiti, and beyond.
Note: I published a short Addendum to this post, which readers can access here.
A few weeks ago I was having lunch with a generous supporter of Grameen Foundation. He is a regular source of important new ideas. On that afternoon, he brought a book to my attention titled Abundance: The Future is Better Than You Think. He said that it argued, rather convincingly in his view, that technologies that already exist or that are advancing rapidly are likely to resolve most of the crises facing humanity including energy and water shortages, the cost and accessibility of health care and education, and more. Since then, I bought the book and read it, saw the authors featured on PBS Newshour, and was informed that Grameen Foundation (where I work) was going to give away copies at a gala that took place in late April (since a promoter of the book donated sufficient copies to do so).
If even one-third of the book’s predictions come true, there are incredible opportunities before humanity to accelerate progress and reverse worrying trends for the benefit of both the rich and the poor, and everyone in between. One of the interesting arguments is that microfinance is an important enabler of making these technologies available and accessible to the poor. On page 10 the authors write: “…there are the very poorest of the poor, the so-called bottom billion, who are finally plugging into the global economy and are poised to become what I call ‘the rising billion.’ The creation of a global transportation network was the initial step down this path, but it’s the combination of the Internet, microfinance, and wireless communication technology that’s transforming the poorest of the poor into an emerging market force. Acting alone, each of these three forces has enormous potential. But acting together, amplified by exponentially growing technologies, the once-unimaginable become the now actually possible.”
In other words, if breakthrough technologies to improve agriculture, human health, education and access to clean energy are upon us, one of the best hopes for them reaching and benefitting the poor in places like Haiti are through the world’s microfinance institutions that already have people on the ground, the trust of the poor, and the ability to finance and encourage them to be early adopters.
Especially in a country like Haiti where there are few if any national institutions working throughout the countryside, this reinforces the importance of the branch network that Fonkoze has created. Debates go on within Fonkoze about whether the organization can sustain all of these branches – some are in very remote areas with limited economic activity.
Many argue that the network effect – what becomes possible when you have a large national presence – is a key differentiator for Fonkoze and should be defended, leveraged and expanded. A growth plan to bring the total number of branches to 60, from the current level of 45, remains under active consideration. While expensive and difficult to operate, especially with a virtually non-existent government and frequently uncooperative commercial partners, this network might end up being the secret weapon that enables new technologies to transform Haiti.
Bearing this in mind, I would definitely give Abundance a read. It will likely leave you more optimistic and with a greater appreciation for the potential of branch networks of microfinance organizations like Fonkoze.