PORT-AU-PRINCE, Jun. 5 (IPS) — A banking scheme that seemed
too good to be true has turned out to be just that for Haitians
who deposited their savings into credit unions promising
triple-digit annual interest returns.
Three months ago, several of the institutions stopped paying
interest completely. That number has now reached 20. While none
have officially gone bankrupt, depositors are worried that they
may not get all of their money back.
The credit unions had promised to return 10 to 12 percent
interest monthly, which translates into an annual dividend of 120
to 144 percent on fixed-term deposits. Commercial banks pay only
six to 12 percent a year on the same types of accounts.
Middle-class families are said to have poured hundreds of
millions of dollars into the credit unions.
Many economists and bankers doubted the scheme from the start,
and in April lawmakers introduced a bill into parliament to
regulate the institutions.
“I wondered how they could possibly make so much money during
a crisis. I’d really like to see the formula they used to generate
this unbelievable interest rate,” said Kesner Pharel, a well-known
radio economist.
The cooperatives, with a boost from President Jean-Bertrand
Aristide, leveraged a high-profile presence — replacing the banks
as sponsors of this year’s Carnival — into large amounts of cash.
At the same time, most Haitian entrepreneurs and businesses were
struggling in an ever-worsening economic climate.
The “new banks of hope” have flourished ever since a speech by
Aristide at the end of 2001 proposed that the government-run
literacy program should be linked with the credit unions’ economic
development programs.
This speech, which coined the phrases “alpha economy” and “alpha
credit union,” boosted the prominence of the credit unions, whose
growth shot through the roof in only a few months.
About 300 savings credit unions operate in the country along
with thousands of savings cooperatives.
Last December, officials began to examine the risk that credit
unions posed to the banking sector as a wave of bank customers
started withdrawing their cash to put it in the credit unions. This
flight of customers, potential customers, and their cash meant an
increased risk of collapse for the banks.
The first warning bell rang when Sogebank, the country’s largest
banking institution, refused to accept credit union deposits.
“I don’t understand the math which allows these credit unions
to offer interest rates of 10 to 12 percent a month on fixed term
deposits. Ever since I was a child, my mother always told me not
to do things I don’t understand,” said Pierre Marie Boisson, an
economist who runs Sogebank.
The banking industry began proclaiming that the credit unions
were unable to explain the source of all their cash, implying that
they might be laundering drug money.
Ever since, it has been open war between the banks and the
credit unions. The walls of the capital, usually scrawled with
political slogans, are now covered with anti-bank graffiti.
In mid-March, several credit unions unilaterally decided to
suspend monthly interest payments to their members, claiming that
they were waiting for monetary officials who had frozen the funds
of an insolvent bank to return their money.
Others decided to reduce interest payments from 12 to three
percent a month. Despite persistent rumors about the bankruptcy of
certain credit unions, they continued to conduct an interest rate
war via gigantic media publicity campaigns.
The Haitian news agency Alter Press suggested that “the credit
unions will be probably to found out as money-laundering
operations, cleaning up their cash while the drug traffickers pay
out their dividends for them.”
At best, said the agency, “it might just be a pyramid scheme
where the interest is paid for by the deposits of newcomers. Or
else it’s just a case of institutional usury.”
Economist Jean Claude Paulvain called for regulation of the
credit union industry in April, noting that they were operating in
a legal vacuum so that victimized depositors would have no recourse
to the law in case of trouble.
Then minister of cooperation, Marc Louis Bazin, predicted the
danger that the credit unions represented and warned the government
to intervene before the International Monetary Fund (IMF) became
involved.
Subsequently, the administration initiated a review and created
a commission to write laws governing the operation of credit
unions.
A bill to regulate the credit union industry was presented to
both houses of parliament in April. One of its key features is an
inspector general for credit unions based at the Bank of the
Republic of Haiti (BRH).
As of yet, there has still been no action on the bill.
For two weeks, depositors have asked President Aristide to step
in. They have now taken their case to the streets. Yesterday, in
front of the presidential palace, one depositor reported that he
had sold his business in order to put all his money in the credit
unions.
“It’s Aristide who urged us to get involved in the credit
unions. He has to respond to us,” said a demonstrator.
Two ruling party senators last week threatened officials from
a credit union where they had deposited nearly $60,000. The press
has reported that members of an elite police unit took credit union
employees hostage, demanding that their money be returned.
“Some credit unions are in trouble just like there are some
banks in trouble,” Aristide said on May 23. “We need to keep our
cool and find an appropriate solution to the problem,” he added.
Border and airport personnel have been ordered to block managers
and directors of certain troubled credit unions from leaving the
country.
