With confirmation of a 5th consecutive year of contraction at the end of fiscal year 2023, the Haitian economy is now firmly entrenched in a cycle of economic depression, the consequence of a multidimensional-political, social, economic, humanitarian and above all security-related crisis. The violence intensified during the first quarter of 2024, negatively impacting the safety of citizens and all economic activity. According to the UN, the security crisis in the Port-au-Prince metropolitan area and in certain provincial towns has reached “levels comparable to those in countries at war”. Political instability, the deteriorating security situation, the disruption of marketing channels and the resulting uncertainty are taking a heavy toll on economic activity. The private sector across all categories is investing little in this harmful environment, which is hampering the development of credit and businesses as well as job creation, and making it difficult to get the economy going again.

IMPACT OF THE CRISIS ON THE SMALLEST BUSINESSES

90% of Haiti’s entrepreneurial fabric comprises micro, small and medium enterprises (MSMEs). These are deemed of strategic importance to the Haitian economy in terms of job creation and they also have great potential for wealth creation, in both rural and urban areas. But MSMEs are particularly vulnerable and are struggling to juggle between short-term survival and medium- and long-term growth strategies. The crisis has triggered a slowdown in their business and a drop in income and often leads to relocation or even closure, particularly when their goods are looted or they have to contend with kidnap- pings. The constraints that MSMSEs normally face are accentuated by this highly degraded situation. In such a difficult environment, risk management is crucial, as it severely restricts access to finance. We should note that women and young people under the age of 35 are the category of borrowers with the highest risk.

The key imperative in the midst of a crisis is to ensure the survival of private companies (and more particularly MSMEs) and to support them during periods of unrest so they can drive the economy forward and enable it to return to growth. The main challenge in a fragile country experiencing violence is therefore to minimise survival risks. The multi-dimensional crisis has increased the needs of MSMEs exponentially and this affects different players, including financing structures.

To finance their businesses, Haitian MSMEs rely on the services of microfinance institutions (MFIs), their main partners for providing credit. MFIs are also exposed to increased risks, as they face major disruptions in an unstable environment. For the past five years, the entire non-cooperative Haitian microfinance sector has been affected. This can be seen for example in the Portfolio at Risk - 30 Days (PAR-30) of five MFIs, which jumped from an average of 8.71% in 2020 to 17.73% in 2023. The number of disbursements plunged by 40% over the same period.

RISK MANAGEMENT AMIDST SECURITY CRISES: THE EXAMPLE OF ACME IN HAITI

Like its counterparts, Action pour la Coopération avec la Micro Entreprise (ACME SA), an MFI with a portfolio comprising 95% micro entrepreneurs, is suffering the effects of an economy in crisis that is limiting opportunities for entrepreneurs. Contracting demand for credit from businesses is reflected in a fall in the number of active clients of ACME. In this fragile environment, ACME had to adapt to continue serving its target customers, particularly by optimising management of the high risk inherent in loans granted to this borrower category. It is therefore necessary to factor in both the risks linked directly to the MFI and those hindering the provision of credit to MSMEs. ACME’s priority has always been to bolster its strategy in order to mitigate the occurrence and impact of risks – especially security, operational, financial and credit risks – without neglecting the impact of other risks.

In terms of security, very close monitoring of the situation has led the structure to adopt various measures, such as the temporary closure of four branches located in high-risk areas, requiring a reallocation of staff and customers. To strengthen the institutional framework, an Integrated Risk Management and Compliance Department has been set up. It plays a vital role in crisis situations, but above all in attracting savings from the general public, thereby encouraging Haitians to invest in maintaining and growing the local economy.

“Country risk” is closely linked to financial risk, in some cases limiting access to capital to meet the demand for credit. Fortunately, in December 2021, ACME was accredited by Banque de la République d’Haïti (BRH, Haiti’s Central Bank) to act as a microfinance company. This new status authorises it to provide other financial services, including savings and term deposits. Access to customer deposits has reduced financial costs. Moreover, savings on certain items of expenditure have helped to reduce costs. ACME has placed particular emphasis on communication (for example, by improving Internet connectivity) to ensure that information is available in real time throughout its network. Other measures taken by ACME include a review of the credit application vetting pro- cess to assess the risk and financial capacity of the prospect more effectively as well as closer customer monitoring. Also, with a view to mitigating risk, the microfinance company has developed a new approach to agricultural credit that factors in the risk profile of farmers more effectively as this varies from one customer
segment to another.

THE ROLE OF TECHNICAL AND FINANCIAL PARTNERS IN SECURING FINANCING FOR MSMES

The situation in Haiti requires a sustained commitment from technical and financial partners (TFPs) to get through this difficult period. Their role is an essential one and may consist of direct support for MSMEs through capacity-building programmes - i.e., technical support and training - to tackle the main constraints identified previously and, above all, to improve their resilience to crises. It can also support the financial institutions that actually fund MSMEs.

To optimise risk management for MSMEs, one of the preferred options is to set up guarantee funds, which provide a specific response to credit risk, i.e. the probability that customers will not repay their loans, especially when they do not have sufficient guarantees. Continuing a relationship with Agence Française de Développement (AFD) that dates back over twenty years, Proparco has been a partner to ACME since 2013, and in 2023 granted it a portfolio guarantee that is proving particularly useful in expanding the range of services provided to MSMEs operating in a context of vulnerability and impoverishment. By granting this type of guarantee, financial backers can help create more structural and less volatile growth in the MFI portfolio and, at the same time, encourage risk-taking among the most vulnerable categories of borrowers, such as women and young people, with a view to fostering financial inclusion.

In addition, a “positive discrimination” strategy could be applied to benefit manufacturing companies that have high growth potential but are more vulnerable, with the aim of strengthening Haiti’s productive fabric and creating wealth and sustainable jobs. With this type of initiative, donors agree to assume part of the risk of non-payment on loans granted, borne by the MFI. This guarantee can take the form of risk sub-participation ranging from 50% to 80%, for eligible loans that will be included by the MFI in the sub-participated portfolio.

While the supply of financial services to the Haitian informal sector has definitely improved over the past 30 years with the emergence of non-cooperative-based microfinance institutions, it is also necessary to recognise certain limitations in this supply. MSMEs use the services of MFIs, most of which offer short-term loan solutions at higher interest rates than those charged by the traditional banking sector, because of the risk involved. This situation is especially restrictive for SMEs, whose financing needs are greater and spread over much longer periods. In addition, the credit supply and demand mismatch is more obvious for companies involved in production – more specifically in agriculture – and this is also the case for businesses operating in the renewable energy sector or in technological innovation. It would therefore be worthwhile for technical and financial partners to help facilitate access to long-term financing, so that MFIs can provide loan products that are better adapted to the needs of these categories of business.

We cannot conclude without highlighting the positive relationship that exists between economic growth and technology-based innovation. As such, it would be worthwhile for financial backers to set up innovation support programmes using different forms of funding. The challenge of ensuring the survival of MSMEs in a fragile and violent country is part of a global strategy involving a range of players. This is where the role of international donors is crucial: they can play a role on several fronts, in particular directly with MFIs, the main partners of MSMEs. The funds made available by donors can help with more structural and less volatile growth in the loan portfolio, while bolstering the action of MFIs resolutely focused on the well-being, economic empowerment and pros-perity of their clients.