Latin America and Caribbean

Honduras Microfinance and Banking Support Program

Client: USAID, subcontract to Emerging Markets Group

2003-06, SEGIR FS

In 2003, 75% of rural households in Honduras fell beneath the poverty line. This meant that more than 442,000 families and 2 million people were experiencing extreme hardship. This poverty was caused in part by small farms and enterprises lacking access to affordable credit. In order to address this issue, CARANA teamed with USAID and the Emerging Markets Group to improve microfinance and banking systems in Honduras. The goals of the program were the following:  

  • To strengthen and mainstream selected microfinance institutions in Honduras
  • To build the capacity of Honduras’ banking commission
  • To effectively regulate the microfinance sector
  • To increase access to formal finance for the micro and small business sector

CARANA’s team worked with four Microfinance Institutions (MFIs) to enhance credit methodologies, simplify the credit review and approval process, and improve internal controls and licensing. All four MFIs increased clients, loan portfolios, and overall sustainability. Hermandad de Honduras (HDH), a small institution in rural Western Honduras, had the most impressive results. In just two years, with CARANA’s help, this institution was able to increase its client base by 247% and become economically sustainable. HDH has also introduced new lending products of particular benefit to the agricultural sector. They are now investing in management systems and continuing to grow and introduce new products to the region.

CARANA also provided support to the National Banking Commission (CNBS). We helped the CNBS staff revise regulations and provided training sessions and visits to regulatory agencies in other countries. Additionally, the application receipt and review process was streamlined and automated with the installation of computer programs. As a result of these efforts, five Financial Private Voluntary Organizations (FPVOs) were granted licenses to operate, improving the availability of financial services to microenterprise in Honduras.

Two commercial banks also received assistance in developing lending programs for SMEs. At the end of the two years, one bank, BAMER, had nearly 10,000 new clients, with projections to double that number in the third year. As a part of this program, BAMER extended a line of credit to HDH and set a precedent for offering loans to FPVOs. These kinds of loans reduce the cost of funds for FPVOs and improve financial terms for borrowers. 

CARANA’s work in the microfinance sector has made a positive impact on the lives of rural Hondurans. This is clear from the positive results found in studies on the impact of microfinance programs in Honduras. The majority of respondents to a survey said that loans had helped them in business and almost 90% said that the loans had a positive effect on their personal lives:

  • 35% said that they were able to have more and/or better food
  • 22% said that they had more resources for a family member's education
  • 22% also said that they had additional funds for clothing and more or improved items for their houses

Another key component of the impact analysis was the Empowerment Survey, for female borrowers.  The study covered the individual, household, business, and community levels.  Almost unanimously, at all levels, women clients perceived a very positive change in their self-esteem during the two-year project duration.

CARANA’s work in Honduras is continuing to have an impact today.  An evaluation done in 2009 found that Fundación Covelo (FJMC), one of the microfinance institutions with which CARANA worked, is continuing to leverage resources provided by USAID.  In 2003, FJMC generally did not lend to the agricultural sector.  Between 2003 and 2006, agricultural lending increased more than 3,000 percent. Presently, outstanding loans represent $222,000, more than 8.5 percent of FJMC’s portfolio. Increased access to credit in the agricultural sector is likely an important factor leading to the 5.9 percent growth rate of GDP in 2003-2007, a much higher rate than in the previous 20 years.