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Keeping remittances flowing to Haiti
Lucy Conger (*)

For the Haitians who lost everything after the Jan. 12 earthquake, they needed the basics: Food, water and shelter.

They also needed money.

The story about getting remittances that Haitians in the United States were sending to their relatives in Haiti includes a heroic feat by Fonkoze—an alternative bank for the poor that specializes in micropayments— negotiations deep into the night and cash drops by U.S. soldiers.

To guarantee the flow of funds, Fonkoze relied on the logistical and management support of the MIF—the IDB Group’s Multilateral Investment Fund—and the U.S. government, acting through the State Department, the Department of the Treasury and the U.S. Armed Forces. The result was the delivery of funds to 34 remote villages in Haiti so that Fonkoze, the country’s third-largest remittance operator, could make good on remittance payments to the poor.

Remittances are central to life in Haiti. The money that Haitians abroad send to their families every year is equivalent to 26 percent of the country’s GDP, or about $1.5 billion, according to MIF figures. More than a third of the country´s adults receive regular remittance payments, mostly from the United States. This money flows to more than a million individuals with annual incomes below $500.

The earthquake made these funds even more critical. Fonkoze’s participation in delivering the remittances is especially important because its services reach rural areas.

“Haiti’s microfinance industry serves people with very low incomes, and it is present in areas of the country that traditional banking doesn’t reach,” says MIF general manager Julie T. Katzman. “With so many people going to the provinces, Fonkoze—the only microfinance organization that pays remittances—will have a central role in providing access to money for numerous Haitian families, so that they can pay for water, food and shelter.”

Before the end of the world

Until January 11, Fonkoze was a microfinance organization experiencing healthy growth. It managed 200,000 savings accounts and made some 60,000 remittance payments a month. It is the largest payment agent in Haiti for the U.S. company MoneyGram.

Fonkoze has been working with MIF for several years to expand these services. MIF gave Fonkoze grants to create a very low-fee remittance service ($6 per transaction for any amount), open new branch offices and implement technology to expedite transactions. Prepaid debit cards, also financed by MIF, helped create strong ties with the U.S.-based Haitian diaspora.

“Many people who receive remittances live outside the main cities of Haiti, where the banks are, and so it was always important for us to support institutions such as Fonkoze, which can provide low-cost services in rural areas that are not served by traditional, large-scale operators,” says MIF remittance specialist Gregory Watson. “If you really want to deliver remittances to most people, the rural networks are incredibly important, because you eliminate the opportunity cost of a long trip to the city to pick up the money.”

But then came January 12, 2010 and the world turned bleak.

Rebuilding the network

Fonkoze’s headquarters in Port-au-Prince was practically destroyed by the earthquake. Three days later, 23 rural branches that had not been damaged by the quake reopened to provide some services. They had little cash on hand because the banks that provided Fonkoze with funds on a daily basis were closed.

By the fourth day after the quake, most of Fonkoze’s branches had Internet access and could pay the remittances sent through MoneyGram, CAM and other transfer companies. On the sixth day, nearly 30 offices were operatingand Fonkoze had been informed by the transfer companies that they would cut all their fees to enable Haitians abroad to send money more easily.

This was good news, but it also brought its own problems. “Everyone wanted money, which meant that our cash on hand was being depleted more and more each day,” says Fonkoze executive director Anne Hastings, who had escaped unharmed from the organization’s headquarters, along with the founder and its executives.

Fonkoze has had to squeeze its reserves to the limit. On-time payments by clients in rural areas not affected by the earthquake helped preserve the affiliate offices’ liquidity. However, payment of remittances became more difficult with every passing day, because the banks were still closed 10 days after the earthquake.

Fonkoze took urgent measures. One extraordinary decision was to open new accounts in gourdes (Haiti’s currency) to pay part of the remittances. Many of those who received remittances in excess of $600 agreed to receive a portion in cash and the rest as a deposit into an account. Still, at that point, the entire network had no more than $40,000 in reserves and cash. Fonkoze had to look for money outside the country, and fast.

The rescue operation begins

On January 19, Hastings contacted Watson to discuss Fonkoze’s urgent issues. Hastings and Watson discussed two ideas: how to quickly transfer $2 million of Fonkoze’s own funds in U.S. banks to an associated bank to be converted into cash, and then how to get that money to Haiti.

Watson consulted with MIF general manager Katzman, and in a 90-minute late night telephone call, they agreed on a plan with Hastings. “Seeing the difficulties that Fonkoze and the entire microfinance sector were experiencing in terms of availability of funds, we felt the need to help come up with a solution,” Katzman says.

Because the U.S. government is the IDB’s main source of funds, MIF suggested convincing the Treasury Department on the urgent need to support a plan to transfer these funds to Haiti.

The initial money would allow liquidity to be maintained until the banks reopened their doors in Haiti. Hastings, Katzman and Watson also decided that the money should be distributed in 10 centers that, in turn, would send the funds to the 34 rural offices that Fonkoze had already succeeded in making operational again.

At 4:52 p.m. on Friday the 22nd, less than three days after the first steps were taken, the logistical operation to save the delivery of remittances got its final vote of support in a memo from the United Nations to the U.S. Agency for International Development (USAID), which gave approval to the U.S. Air Force to transport the money to Haiti from south Florida. “The military personnel were incredible: efficient, committed and, above all, polite,” Hastings says.

On Saturday the 23rd, at 2 a.m., a C-17 landed at the Port-au-Prince airport with the cargo: bags of $1, $5 and $10 bills, all money in low denominations, for immediate use. Hastings had already coordinated with the managers of Fonkoze’s 10 distribution centers so that they would be ready to distribute the money as soon as possible. The executives at the other branches were told where they could pick up their funds.

At 6:30 a.m., 10 helicopters guarded by Marines flew from the base at Port-au-Prince to their destinations. By noon, all of Fonkoze’s distribution centers had the money and were fully operational.

After the earthquake, Fonkoze’s officials had estimated that the bank’s client base had expanded, and that payment of remittances would double quickly. For MIF’s Katzman, the achievement is still greater. “This was a fantastic example of what we can do when donors, microfinance organizations, governments and international institutions work together,” she says. “We, as MIF, are doubly proud, because we have been involved in the process since it started, contributing our knowledge and resources, and approaching the participants to execute the plan.”

(*) With Diego Fonseca, in Washington, DC.