Honduras – Farmer Access to Credit

Building Credit Capacity for Rural Honduran Farmers

ACDI/VOCA implements the $2,893,663, Millennium Challenge Corporation-funded Honduras Farmer Access to Credit, or Acceso a Crédito para Agricultores (ACA), project. Through the two-year program, ACDI/VOCA is increasing the supply of credit and the availability of other financial services to smallholder farmers, agribusinesses and rural enterprises in Honduras.

ACDI/VOCA provides technical assistance to develop the capacity of local financial institutions to offer credit and other services to a broad range of farmers and rural entrepreneurs who lack access to them. Financing under the project’s farmer loan fund facilitates the supply of credit to farmers in the short term; in the long term, ACDI/VOCA promotes the sustainable expansion of financial services to farmers and other rural enterprises on strictly commercial terms.

ACA addresses several of the supply constraints in Honduras by strengthening the ability of financial institutions to better serve the rural and agriculture sector through three subactivities: technical assistance to financial institutions, a loan fund, and assistance in developing the movable property registry. ACDI/VOCA helps financial institutions interested in expanding services to farmers, value chain enterprises and other rural enterprises. It also helps credit unions and microfinance institutions strengthen value chain financing and improve their supply of services to the agriculture sector.

In order to facilitate at least 5,000 loans to program farmers, the program works with a variety of financial and nonfinancial institutions supporting the broad range of horticulture value chains in which ACA’s farmers are involved.

Given the size and the dispersed nature of the beneficiary farmers, ACDI/VOCA’s approach under ACA is to work with a larger number and range of institutions in order to spread a wider net, not only regionally but also across the ranges of loan sizes and needs. In following this methodology, the program has developed partnerships with banks and nonbank financials as well as an important supplier of credit to small farmers—the input providers (retail and wholesale). This work is supported by the involvement of the buyers and exporters who can provide a strong measure of risk mitigation to the financing of the small producer.

As part of the strategy, ACDI/VOCA works to lower the hurdles to finance that farmers encounter, which implies modification of the current financial product line. However, in addition to developing a more appropriate product for the farmer, it is also necessary to convince the financial institution that risk can be managed by designing a better product and launching it appropriately. Therefore, ACA uses the best-practice strategy of product piloting, which not only reduces the overall risk to the financial institution of financing the unknown producer, but also increases the financial institutions’ knowledge of the sector in general and the producer in particular. This has a secondary effect of establishing the discipline of a pilot process within the financial institution, which heretofore had a more ad hoc product implementation process.

As of March 31, 2008, ACA has facilitated technical assistance to over 13 institutions that have provided 102 loans or loan facilities to discreet beneficiary farmers. By the end of the program, it will provide support to at least 8 wholesale and retail financial institutions to deliver at least 5,000 loans to program farmers.

For more information, contact Caroline Meltzer at cmeltzer@acdivoca.org.

Updated: 8/08

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