TRANSITION FROM MICROFINANCE INSTITUTION TO REGULATED BANK:
THE CASE OF FONKOZE’S TRANSFORMATION
Dina Franceschi, Aaron Seymour, Winston Tellis & Michael Tucker
This case documents the transformation of a microfinance organization into a commercial bank. The case is provides the student with information about conditions in a developing country (Haiti). Students are encouraged to consider the difficulties faced by people trying to business in or with those countries. Fonkoze was the first organization that applied for such a change, and the Haitian Central Bank was forced to develop requirements that such organizations had to meet. The fact that as in many developing countries, the infrastructure in Haiti was not conducive to business only adds interesting elements that the students and instructor might be able to exploit.
The case is intended for advanced senior undergraduate students or MBA students. The case could be used effectively in banking courses, and MFI training courses. The instructor may decide to present the students with as much of the material as their background requires. In essence less prepared students will need more handed to them, making the case available to more students. There are financial calculations and an accompanying spreadsheet that allows the students to make judgments and decisions about the appropriateness of Fonkoze’s intention to convert to commercial status.
Fonkoze located in Port-au-Prince, Haiti is an MFI founded in 1996 and is currently the largest organization that lends to the poor. They have grown from just 600 accounts to over 20,000 accounts in 7 years. In the process they have exhausted the capability of their software to handle their activity, and their network resources are strained.
Since they are the only organization in some areas of the country, they collect savings as well. They now process over $1 million in savings deposits, but are not allowed to benefit from those funds, because they are only an MFI. They deposit those funds in a commercial bank. Their main purpose in deciding to convert was to have access to those savings accounts and thus to a ready source of funds that could be loaned out. The interest from those loans could be a source of significant income. Fonkoze is managed transparently and thus the details presented in the case are extremely educational to students and other such organizations alike.
This case was prepared by Dina Franceschi, Aaron Seymour, Winston Tellis and Michael Tucker, Fairfield University, and is intended to be used for class discussion rather than to illustrate either effective or ineffective handling of the situation.
Presented to and accepted by the North American Case Research Association (NACRA) for its annual meeting, November 2003, Tampa, Florida. All rights reserved to the authors and NACRA. © 2003 by Dina Franceschi, Aaron Seymour, Winston Tellis and Michael Tucker.