Microfinance Yields Better Futures for Honduran Farmers

January 29, 2020

Until recently, Older Rivera, a coffee, green bean, and tomato farmer in Santa Barbara, Honduras, was always short on money in the weeks before planting season began. He sometimes borrowed money from neighbors or relatives to cover seed and fertilizer costs, with the hopes of repaying the loan after harvesting. Typically, however, he and smallholders like him are at the mercy of commercial intermediaries, who charge sky-high interest rates that lock farmers into a financial spiral that is difficult to escape.

It’s a challenge that’s been exacerbated in recent years across Honduras. Drought, climate change, and plummeting coffee prices mean that agricultural workers across this mountainous central American country are less likely to be able to plan for the future.

But that’s starting to change. With support from the Private Sector Window of the Global Agriculture and Food Security Program (GAFSP), IFC recently launched a partnership with the Cadelga Group, one of the largest distributors of agricultural products and services in Honduras. The advisory services project has helped Cadelga create a new department, AgroMoney, which provides loans to smallholders in the form of fertilizer, seeds, and irrigation technology. GAFSP is implemented in partnership with the governments of Australia, Canada, Japan, the Netherlands, the United Kingdom, and the United States.

As part of the program—which is the first microcredit package of its kind in Central America— farmers receive inputs, as well as training, and later repay the loans with competitive interest rates similar to what they’d receive in the formal banking sector.  “I feel very happy because I had never had the opportunity to receive a credit before AgroMoney,” Rivera says.

Smallholder farmers are receiving loans in the form of fertilizer, seeds, and irrigation technology.
Smallholder farmers are receiving loans in the form of fertilizer, seeds, and irrigation technology.

Answering a Need for Microloans

Until recently, Cadelga was best known for selling agricultural supplies to large and medium-sized farms across Honduras and other parts of Central America. But microloans hold tremendous opportunity for the company: Nearly 40 percent of Honduras’ 9.2 million people work in the agricultural sector and smallholders make up some 70 percent of the agricultural community, farming low-profit crops such as bananas, plantains, rice, maize, and beans.

Reaching these small-scale farmers—about 2 million people— has been a challenge. Just 45 percent of the population in Honduras has a bank account, one of the lowest levels of financial inclusion in the region, according to the 2017 Global Findex. In rural areas, the situation is even more complicated: Farmers lack the collateral and financial literacy needed to access credit and interact with the formal banking system. Banks, meanwhile, see the smallholder space as too risky. And as Yibrin noted, the country’s topography makes it all the move difficult: few bankers want to travel into the mountains along bumpy dirt roads to process a small loan.

Image: © Svetlana Bykova/Shutterstock

According to Mateo Yibrin, Cadelga Group’s chief executive officer, the company had explored selling to small farmers in the past. “We tried for more than a decade to get into microloans with smallholders, but we lacked the process, policy, methodology, and strategy,” he says.

Stop-Winlock’s expertise helped the company finally implement that plan. The AgroMoney pilot, launched in March 2019 in the Santa Barbara region and rolled out to the Comayagua region in August 2019, has provided 850 loans to smallholder farmers totaling about $1.3 million. In January 2020, another pilot launched, in the Anillo Verde region. As part of the program, smallholder farmers get a credit line approved, but they only pay interest on the amounts they’ve used—which keeps costs low. The project aims to reach more than 4,400 farmers by 2021, with plans to expand throughout Honduras in the coming years.

As part of the loan, farmers also receive training in crop diversification and upgraded irrigation techniques, which helps offset the effects of drought. For farmers like Andrés Pineda, the impact has been dramatic. Though he’s farmed coffee, cucumbers, and sweet peppers for more than 12 years, “AgroMoney is the only one who has helped my farm when I needed it, and in a timely manner,” he says.

According to Ary Avila, who heads the AgroMoney division, providing access to better fertilizer and improved seeds, alongside technology to establish water-efficient drip-irrigation systems, has helped farmers increase crop productivity and quality even despite the drought—all of which is boosting resilience in face of climate change. “We are increasing productivity, revenue and wellbeing,” he says, and in doing so, “breaking the cycle” that so many farmers had been trapped in previously.

Strengthening Retailers’ Operations

IFC is also working with Cadelga to strengthen its network of retailers—nearly 30 stores in the first two pilot regions, many of which are family-owned and lack the managerial and customer service skills to grow their business. The project has already assessed the retailers’ needs and provided training and coaching to 18 of them alongside timely advice on best agricultural practices—all of which helps ensure that these small businesses can serve rural communities. Through this work, Cadelga is helping build a more efficient, inclusive, and sustainable distribution network in Honduras to reach more smallholder farmers.

Yibrin says that the project is continuing to improve lives, while also playing an important strategic role in the region. “By 2050, this part of the world won’t have enough land to feed the entire population and so this is an important solution to help address the challenge of food security head on,” he says. “We need to empower smallholders to feed themselves, their families, and the rest of us.”

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Published in January 2020