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Executive Summary

In 1995, the Haitian government transformed Haiti’s banking sector by removing interest rate ceilings on loans and lowering the reserve requirements for banks. As a result, some existing banks reached out to potential clients in the informal economy, while new microfinance institutions (MFIs) began operations specifically targeted at these same consumers.

However, following these changes, Haitian banking regulations failed to keep up with the rapid pace of changes in the financial sector. In 2002, the lack of updated laws and regulators came to a head as hundreds of pyramid-scheme organizations claiming to be legitimate credit unions/cooperatives collapsed and $200 million in Haitian savings disappeared with them. The incident was a black eye for legitimate savings and loan cooperatives and finally pushed to the government to adopt updated legislation for credit unions.

Unfortunately, this new legislation stopped short of standardizing regulations across all types of MFIs (commercial banks, credit unions/cooperatives, and non-cooperative MFIs), limiting adoption of client protection standards in many institutions. An institutional emphasis on financial transparency likely stems from the 2002 crisis, but so far few Haitian MFIs appear to have moved far beyond this approach to take more proactive steps that directly address the six principles of client protection. In the absence of legislative or regulatory leadership, it will be up to industry networks to promote and implement standards that protect client interests. Key factors currently shaping client protection in Haiti’s financial services sector include:

• A 1980 legislative decree regulates the formal banking sector, while credit unions are subject to a 1981 law governing cooperatives and a 2002 update that gives banking authorities financial oversight responsibility for credit unions. Non-cooperative microfinance institutions operate without a formal regulatory structure and as a result standardization in the industry is weak.
• A 2007 USAID census of MFIs in Haiti found that the industry employed more than 3,600 people and served 239,000 clients. Two-thirds of those clients were women. The MFIs had a total loan portfolio of about US$105 million and were holding client savings of US$60 million.
• Industry networks like ANACAPH, KNFP, and ANIMH are playing an increasingly important role in developing and training MFIs on best practices. KNFP reaches out to rural MFIs directly with its Mobile Training Institute, while ANIMH has focused on standardization in the non-cooperative MFI sector and is developing a credit bureau to facilitate smarter lending practices.

 Introduction

Haiti is one of the poorest countries in the world, and the poorest and least-developed country in the Western Hemisphere. Remittances account for nearly one-quarter of Haitian GDP. A history of political instability and natural disasters has slowed economic development, although since 2006 the country has registered GDP growth above 2% per year.

Financial service providers in Haiti are divided into three broad categories: commercial banks, credit unions (cooperatives), and non-cooperative microfinance institutions (MFIs). Regulation varies widely among the three categories, with non-cooperative MFIs subject to less oversight than their commercial and cooperative counterparts.

Legal Framework 

The 1980 decree regulating banking established the Bank of the Republic of Haiti (BRH) as the primary regulator for commercial banks, and a 2002 act extended the BRH’s regulatory mandate to cover credit unions as well. The BRH sets financial standards for these institutions and inspects them to ensure compliance. Banks and CECs are also required to submit financial reports to the BRH each quarter. Additionally, the BRH is responsible for examining requests to operate banks and credit unions and for issuing the necessary permits. Notable provisions of the legislation include:

• Individuals convicted of past financial crimes are banned from working in the banking sector.
• The BRH must grant permission to open branches beyond a bank’s headquarters location.
• The minimum capital required to start a commercial bank is G5,000,000 (US$138,000)

The Ministry of Economics & Finance shares a mandate to “ensure implementation of laws on the establishment, organization, operation and supervision of banks, foreign exchange bureaus, credit institutions, and insurance companies.” However, despite the fact that this mandate is part of the Ministry’s mission, neither the organization’s strategic plan nor its website references any activities related to this oversight role.

In the case of credit unions, the government-created National Council of Cooperatives (CNC) also oversees their operation. A 1981 law regulates all business cooperatives, including credit unions, but it is unclear if this regulation includes consumer protection provisions. After the 2002 cooperative crisis, the CNC turned over financial inspection responsibilities for credit unions to the BRH, but retained some oversight and regulatory responsibilities.

Non-cooperative MFIs frequently operate outside a legal framework that addresses the unique characteristics of their businesses. Depending on how they were formed, these institutions operate as NGOs, associations, foundations, community-based organizations, community banks, private companies, and even divisions of commercial banks. This variety of modes of operation creates an inconsistency of standards and regulation. A report by the international development consultancy DAI published in 2000, lists the lack of a uniform legal framework for MFIs as the primary roadblock to the creation of a more comprehensive system of consumer protection. A draft legal framework for the microfinance sector exists as a bill, but it has not yet been passed into law.

Consumer protection law as a separate legal framework for users of financial services is relatively non-existent. However, the 1980 decree regulating banking includes some basic consumer protection provisions. The law limits consumer over-indebtedness by banning banks from writing mortgages for amounts exceeding 70% of the value of the guarantee for the general public (95% for bank employees). Additionally, the BRH maintains a central repository of credit information reported by individual banks and shares this information with banks. It is not clear if this is institution- or client-level data, and unregulated MFIs are not included in the repository.

While transparent pricing to the consumer is not mandated in the 1980 decree, the BRH can force banks to submit current interest rates, commissions, and other fees to regulators. Collections practices in Haiti appear to be largely at the discretion of the lender, but a 1984 law regulating savings and mortgage banks outlines a specific court procedure that these banks must use to collect on bad debts. The law specifies that borrowers must be given sufficient travel time to appear in court and that they can appeal any decisions made in their absence. While this legislation only applies to this specific sector of banks, it could provide a model for other legislation regulating other types of financial institutions.

Current legislation leaves the definition of ethical behavior up to financial institutions, but it does bar individuals convicted of financial crimes from working at regulated banks. Nonetheless, the fragmentation of financial sector regulation could allow these individuals to work in unregulated institutions or noncommercial banks. The 1980 decree is specific about protecting client information. Bank employees and contractors who violate client privacy can face fines and/or imprisonment. Again, however, this regulation only applies to regulated commercial banks, leaving many MFI clients without legal protection.

Beyond financial sector regulation, the Ministry of Trade and Industry runs a Quality Control and Consumer Protection Department, but it is mainly concerned with issues of food and product safety. In 2004, the government organized the National Federation for the Defense of Haitian Consumers (FENADECH). FENADECH is a conglomerate of four different consumer rights groups, but, to date, it does not appear to have been very active since its founding. 

Networks/ MFIs

Financial institutions in Haiti belong to at least one of four main associations depending on the type of institution. A 2008 USAID directory of MFIs in Haiti breaks down three of the associations as follows:

• The National Association of Haitian Credit Unions (ANACAPH) represents 42 cooperative financial institutions.
• The National Council of Popular Financing (KNFP) represents nine non-cooperative financial institutions based primarily in rural areas.
• The National Association of Haitian Microfinance Institutions (ANIMH) represents 17 non-cooperative MFIs, with six of these institutions also belonging to the KNFP.
• The 13 commercial banks operating in the country belong to the Association of Professional Bankers (APB).

ANACAPH

Founded in 1998, ANACAPH unites financial cooperatives and credit unions across Haiti in order to promote the cooperative sector both nationally and internationally. Following the cooperative crisis of 2002, ANACAPH has stepped up its efforts to instill public confidence in its member organizations by demanding strict observance of applicable laws, democratic principles, and transparency. The organization’s mission also requires it to promote financial literacy among consumers. The association has eight main objectives:

• Support the organization of credit unions and international cooperation among its members.
• Represent its members to third parties and defend their interests.
• Promote education on economic, social, and cooperative topics.
• Promote the growth and development of its members by providing appropriate services.
• Promote research studies on credit unions and the cooperative movement.
• Promote cooperative values and respect for generally recognized principles.
• Promote member adoption of and compliance with risk management standards.
• Undertake activities to generate revenue and meet member expectations.

In addition to these objectives, ANACAPH offers trainings to its members on topics ranging from the legal and regulatory framework for cooperatives to professional ethics.

Network Details:

(2007 data)

KNFP

Founded in 1998 by a Methodist development group, a women’s economic empowerment group, and a popular financing collective, the KNFP now represents nine rural microfinance providers. At its founding, the KNFP expressed the following main goals:

• Promote regular meetings to ensure that decentralized financing structures cover as much territory as possible.
• Guarantee that organization members implement standard controls and transparent structures in their institutions.
• Help the State better distribute financial resources to the people.
• Work with government officials to analyze the best funding channels for rural production.
• Contribute to the establishment of a law on popular financing to limit erratic behavior in the industry and to promote legalization and approval for recognized institutions.

The KNFP organizes its activities around three main areas:

• The training of rural finance institutions and workers through its Mobile Training Institute(IMOFOR).
• Advocacy and promotion of rural finance.
• Improvement of financial services in Haiti in general, and in rural areas in particular, through information exchanges and reflection on issues of rural finance.

ANIMH

Founded in 2002, ANIMH is a non-profit association focused on further development of the Haitian microfinance sector through the professionalization of MFIs nationally. ANIMH promotes best practices in microfinance to local institutions via its National Microfinance Center. The association focuses on six main objectives:

• Represent non-cooperative microfinance institutions.
• Facilitate consultation and cooperation among members through the General Assembly and specialized committees.
• Promote studies, research, and data-gathering in order to disseminate information about the situation, trends, needs, and efforts of the microfinance sector.
• Aid in the development of draft legislation, regulations, and other documents for government authorities in order to inform and guide their approaches to structuring the microfinance sector.
• Establish relations with other national and international microfinance associations in order to further information exchanges and cooperation.
• Engage in any activity designed to strengthen members in particular and the industry in general.

ANIMH’s strategic plan implements these objectives through four areas of intervention:

• Area 1: Structuring the sector via coaching and mentoring activities to members in order to implement best practices in microfinance. ANIMH’s vision includes taking steps to increase transparency among member institutions. Specific activities include institutional diagnoses, ratings, and external audits.
• Area 2: The provision of services to members at a lower cost because of economies of scale. ANIMH plans to offer services to the Haitian microfinance sector, including a training center, a credit bureau, sector performance indicators, and new product development.
• Area 3: Officially representing the microfinance industry before the Haitian government in order to defend industry interests and promote the creation of a legal framework under which non-cooperative MFIs can operate. This advocacy will also require ANIMH to coordinate among its member institutions to harmonize priorities and practices.
• Area 4: Promoting the Haitian microfinance industry nationally and internationally via communications efforts, thought leadership, and implementation of a seal of approval process for member institutions that abide by the highest standards of quality.

Since 2006, ANIMH has coordinated 13 of its members to exchange information about clients who default on their loans. As part of the organization’s strategic plan, this information exchange will evolve into a credit bureau for member MFIs. Additionally, ANIMH trains member institutions on professional ethics.

Network Details:

(2007 data)

Fonkoze

While not a network, Fonkoze is the largest microfinance provider in Haiti. Founded in 1994, the organization offers savings and credit products, focusing on female clients. Fonkoze’s background and principles commit it to several of the principles of client protection. Specifically, the MFI offers tiered loan products to respond to the needs of different customer segments and ensures that customers understand these products through a robust general and financial literacy program. Additionally, five of the nine members of Fonkoze’s board represent client interests.

Conclusion

Without strong national or industry leadership on the issue, financial institutions have integrated consumer protection into their businesses on an individual basis and only as they have seen fit. As a result of the fragmentation of financial services regulation, consumer protection in Haiti is composed of a patchwork of domestic legal obligations, international treaties, and organizations’ internal codes and practices. The lack of formal regulation of non-cooperative MFIs is the greatest stumbling block to the strengthening of consumer protection for users of financial services in Haiti. Until regulation is normalized across the three categories of financial institutions, legal requirements for consumer protection will remain lax and the level of protection will vary from institution to institution.

We appreciate the contributions of the students of the University of Pennsylvania's Wharton School of Business who assisted with the research and writing of this country profile. These profiles are not exhaustive and have not been reviewed by country experts. If you notice a gap or error in any of the profiles, we would very much appreciate your comments about how they can be improved. In this way we can work together to expand our understanding of the variety of client protection strategies and initiatives that are being pursued in different parts of the world.

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