Abstract:
In 1995 Haiti's banking sector undergoes reform, two important aspects of which are a lowering of the reserve requirement on banks and a lifting of the interest rate ceiling on loans. These reforms give banks the opportunity to expand their lending activities, but who to lend to? Some banks turn to the informal sector, which dominates the Haitian economy, and to microfinance as a way to serve entrepreneurs working in this sector. Pierre-Marie Boisson, Chief Economist of Sogebank, the largest bank in Haiti, begins selling the idea of microfinance to his board of directors in the late 1990s. By 2000 the new microfinance affiliate of Sogebank, Sogesol, opened its doors for business. A year later it has 2,200 active clients and has extended over 4,500 loans. As expected Sogesol is incurring losses, but it had built a sound operational base with the help of Accion International, which is a part-owner and technical assistance provider. Its challenge for the coming year is to further improve its productivity to maximize the number of clients each of its loan officers serves and to expand beyond metropolitan Port-au-Prince to Haiti's provincial towns. Beyond these internal challenges, Sogesol faces two external threats. Competition from other microfinance providers not only threatens its market share, but, more ominously, threatens to create over indebtedness of entrepreneurs in the informal sector. The solution to this problem is a credit bureau system that allows lenders to share information about their borrowers. But a central bank effort in the mid-1990s to institute such a system failed, and it is unclear who will lead a renewed effort. The other external threat Sogesol faces is the uncertain regulatory environment in which it is operating. Haiti has no microfinance regulations, and Sogesol is operating under the umbrella of Sogebank's bank regulations.
Learning Objective:
Using this case, students can place themselves in the role of Pierre-Marie Boisson and devise a strategy in combating these internal and external threats facing his bank.
