Wednesday, February 10, 2010

How microcredit helped after the Haiti Earthquake

Haiti's biggest microcredit bank Fonkoze received an immediate transfusion of cash from JP Morgan just after the earthquake. The money arrived on January 22nd and Fonzose debtors were able to receive small grants from the bank of a couple of dollars. Meanwhile, major banks in Haiti were inoperable for about a week after the earthquake.

Newsweek looks into the rescue efforts of microcredit banks, not only in Haiti but in other disasters. Writer Mac Margolis and Lucy Conger even recieved some quotes of criticism from people at Grameen Bank.

Such ambitions have drawn flak: "I am unaware of any historical examples of nations that climbed out of poverty on the backs of small entrepreneurs financed by credit," U.S. circuit court justice and economic historian Richard A. Posner once commented. But microcredit initiatives have since bloomed in a thousand boardrooms, winning converts in the World Bank and the Inter-American Development Bank (IDB), and even luring major commercial banks, many of which now see the future of their industry in courting the "unbanked" multitudes.

But the Haitian earthquake illustrates a more pressing role for microfinance institutions: helping societies respond to shattering tragedies. Ironically, not so long ago many development experts assumed it was the microfinance institutions (MFIs) that would need saving in times of crisis. National calamity, they noted, falls hardest on the weak, depriving the poor of jobs and capital and so, they reasoned, automatically driving them into massive default. "If people could get no money, they couldn't repay. The whole sector was threatened," says Don Terry, a former IDB microfinance and remittances specialist.

In fact, the opposite has been the case. "Devastation typically paralyzes the big banks," says Terry. "Microfinance institutions are used to dealing at grassroots levels in a way that large commercial lenders cannot." In 1998, when Hurricane Mitch ravaged Nicaragua and Honduras, shuttering banks and destroying roads and bridges, microlender Fundación León 2000 stepped into the breach, putting its experience and vast rural customer network at the service of relief agencies. "Microfinance institutions were the only ones able to communicate," says Alberto Solano, the Grameen Foundation's regional CEO for the Americas.

MFIs swung into action again after the Asian tsunami in late 2004. Even as they buried the 200,000 dead and cared for the injured, rescue crews were faced with tens of thousands left homeless and desolate across Indonesia, India, Sri Lanka, and Thailand. For that, they needed not just cash but an organization structured to parse the needs at ground level and get money to scattered clients. Enter microcredit experts like Grameen, which helped raise disaster loans and channel the credit to stricken families through local microlenders.

No comments: