Build Change and its partner Fonkoze Financial Services commit to develop and pilot a tailored financial solution for certified block manufacturing SMEs in Port-au-Prince, which includes a loan product and managerial technical support.
To develop a package that will match the SMEs needs in the block manufacturing sector, Fonkoze will first gather information on the sector in Haiti. Fonkoze will then assess the block manufacturers needs, management capacity, and other financial and managerial data to determine an appropriate average loan size, grace period, and ideal installment structure. The analysis will also help to identify the technical support required to increase the block manufacturers competitiveness and creditworthiness. Build Change will arrange visits with certified SMEs and share information with Fonkoze to facilitate analysis in tailoring a package that will meet the sector needs and capacity.
Build Change is already collecting data on the production, sales, and other pertinent information of the certified block manufacturers through its database and REZO, a network of construction professionals certified by Build Change and established in 2014, 10% of which are women-owned businesses. REZO is dedicated to the promotion of products and services that meet the requirements of the National Construction Code of Haiti (CNBH). REZO partners with experts in training, marketing and product development to support the business needs of its affiliates through job placement services, marketing strategies, financial stimulus packages, technical assistance, and skill development. Build Change already monitors basic information on the block manufacturers profiles and also collects data on the quality of their blocks on a periodic basis, production, sales, and business profile in terms of equipment available, number of employees. This commitment will build on the strength of REZO.
This commitment is a pilot will target 100 SMEs in the block producing sector from which at least 80 will receive credit and managerial assistance/financial literacy training from Fonkoze.
September November 2015: Data collection and market analysis; Fonkoze will present proposed loan packages to Build Change for discussion.
December 2015 February 2016: Presentation and promotion of the package to eligible SMEs; Assistance provided to SMEs to prepare for their loan request.
March- August 2016: Analysis of loan requests; Selection of block manufacturers to receive loans.
September December 2016: First loans, technical assistance, and financial literacy training will be offered to eligible SMEs (approximately 30).
January June 2017: Second group of loans, technical assistance, and financial literacy training will be offered to eligible SMEs (approximately 50); Analysis of the results of the first group that received training and loans- sales, production, management capacity, and repayment behavior will be analyzed in order to make any adjustments needed for a more successful product to reach the final objective of increasing business development.
June- November 2017: Evaluation of impact on business development capacity of the assisted SMEs in terms of increased sales, production, quality, level of technology, job creation and any other indicators.
December 2017- February 2018: Report produced that identifies the strengths and weaknesses to improve the loan packages and which will be conducted via surveys with block makers. Following the report, adjustments will be made to improve the products and services as a result of the evaluation, and plans to scale beyond Port-au-Prince.
Small and medium sized enterprises (SMEs) represent 90% of all enterprises in Haiti. They are defined by The Professional Banking Association (APB) as having at least one of the following characteristics: between 10 and 100 employees; assets valued between $125,000 and $1,250,000; and annual sales between $125,000 and $1,250,000. SMEs in Haiti face difficulty accessing financing to grow their businesses and produce higher quality products, which inhibits them from competitively penetrating the market. A study completed by Technoserve in 2010 found that 50% of Haitian SMEs could not access credit.
Haitian block manufacturers, who need to make large investments in equipment, currently have the following options on the financial market: microfinance, traditional loans from commercial banks, and special SME loans. Yet, these financial products do not meet their requirements in terms of 1) access to loans (lack of required collateral and/or unavailability of financial statements), 2) a loan size of at least $10,000 to $35,000 (as an example, $10,000 is needed just to purchase a conveyor), 3) cost of capital (lower than 3% per month), and 4) a grace period and repayment terms of 24 to 48 months.
Microfinance institutions (MFIs) primarily address low income businesses and their average loan amounts are insufficient for the SME sector (less than $3,000). Additionally, the repayment length varies from six to 12 months, there are high interest rates (from 24% to 60% per year), and no grace period is offered.
On the other hand, traditional banks offer loans that may match SMEs needs in terms of grace period, interest rates, and repayment periods of up to 60 months, but they require business management knowledge, financial statements, business documents, and collateral that most Haitian SMEs are unable to provide. Entrepreneurs in this sector lack the managerial capacity to increase their creditworthiness.
Some banks in Haiti have developed financial products for SMEs, which offer an intermediary solution between a microcredit and a traditional bank loan, although they still do not match SMEs needs in the construction sector in Haiti. Loan amounts remain too low for them to invest in quality equipment, and the repayment period is still short. Rates from this segment, for example, vary from 3% to 5.5% a month and the amount for loans to the block manufacturers will not exceed $10,000.
To facilitate access to credit for these SMEs, tailored loan conditions should be considered.
