Honduras: Post Supports Microfinance International

UNCLAS TEGUCIGALPA 002491

SIPDIS

STATE FOR WHA/CEN, WHA/EPSC, EB/IFD, AND A/OPR/OS/CS
STATE PASS OPIC FOR Richard Greenburg, Loren Rodwin

E.O. 12958: N/A
TAGS: ECON AMGT HO OPIC
SUBJECT: Honduras: Post Supports Microfinance International
Corporation OPIC Application

REF: State 221168


1. Summary: Post strongly supports MFIC USD 4 million
request in OPIC financing to support its lending program for
Microfinancial institutions, and USAID continues to work
with all three prospective partner organizations of Finsol,
Banhcafe, and ODEF. Post looks forward to learning more of
possible synergies between this OPIC project and ongoing
USAID micro and rural microfinance projects. End Summary.


2. USAID has worked in the past with each of MFIC's three
prospective partner institutions and expects to continue to
work with them in the future. Further, USAID Honduras knows
the management and lending programs of each of these three
institutions and finds them sound.


3. FINSOL and ODEF are regulated microfinancial NGOs, and
are leaders in the Honduran microfinance industry. USAID has
provided support to both institutions with good results, and
has seen an increase in their number of clients and a
decrease in their arrears rate. Currently, ODEF has 13,500
borrowers, and a current rate of arrears of 5 percent.
Eighty-one percent of loans are destined for commercial
activities, two percent for industrial activities, eight
percent for services, and nine percent for agricultural
activities.


4. FINSOL is also commercially oriented, with a portfolio
of ninety percent commercial loans and 10 percent industrial
and agricultural loans. They currently have 17,615
borrowers, and an arrears rate of 8 percent. Finsol's
President and Executive Director met with Econ/Comm section,
and participated in a conference call with Loren Rodwin on
November 5 to discuss OPIC financing for microfinance
institutions.


5. BANHCAFE is the only Honduran bank with a specialized
microenterprise department, and is looking for additional
market niches - particularly as they face increasing
competition from new foreign banks that have begun
operations in Honduras, such as Cuscatlan and Lafise.
BANHCAFE began its microenterprise activities after
receiving technical assistance from USAID in 1999.


6. There is a good market for microfinance in Honduras,
given the levels of unemployment and limited long term
financing available for entrepreneurial activity.
Competition in this sector is also rising, as several NGOs
are launching microfinance programs. The microlending
sector is primarily (sixty percent) composed of self-
employed women in their mid-thirties. They are often the
head of the household, and rely on their microbusiness for
income. These small and medium enterprises (SMEs) are a
very important segment of the Honduran economy, generating
employment for approximately 760,000 people (forty percent
of the economically active population). Most are engaged in
commercial activities, such as microgroceries (the
pulperias),used clothing, and small cafeterias. Others are
engaged in small manufacturing activities in areas such as
food products, furniture, shoes, sewing shops, and
metalworking. About seven percent are engaged in service-
related activities, such as electrical repair shops,
automotive after-market services, and beauty salons. Most
SMEs are located in the urban areas of Francisco Morazn,
Corts, Comayagua, and Choluteca.


7. Post looks forward to learning more details about
MFIC/OPIC's program with them and evaluating how we can work
with them in the future, especially for rural lending to
small and micro rural enterprises. Any details on MFIC's
specific objectives and lending terms with these three
Honduran microfinance lending institutions would be greatly
appreciated. Post thanks OPIC for its ongoing information
n
and updates on projects in Honduras, and looks forward to
continued cooperation.

Ford