On October 28th 1998, Hurricane Mitch struck Honduras and caused the worst flooding the country has experienced in close to 100 years. In addition to claiming thousands of lives and destroying an estimated 35,000 homes, Mitch decimated one of the main markets in Tegucigalpa, the country’s capital.
In the aftermath of the disaster, most lending institutions were reluctant to provide credit to businesses that relied on a market that had been destroyed. How would these businesses repay loans, they asked, without a market to sell their products? Without these loans, people would not be able to restart their businesses, making the impact of the hurricane even more devastating.
Fortunately, one organization was willing to provide this much needed credit. This was Fundación Covelo (“Covelo”), a pioneer of microfinance in Central America.
Today, Covelo functions as a second level institution and facilitates US$ 31.7 Million in loans to 40 microfinance institutions, which in turn serve close to 300,000 clients in rural Honduras, Nicaragua, Guatemala and El Salvador. Covelo’s support targets low-income, mostly rural households. More than 53% of Covelo’s clients are women.
Covelo has had a catalytic impact on the microfinance sector in Honduras.
The foundation has supported the drafting and approval of regulatory laws for the sector and promoted a new field of study at the national university focused on building a technical career in microfinance.
Through its MFI clients, Covelo provides or supports a range of services that have a social and/or environmental impact. These include, among other areas of focus, providing credit to micro, small and medium enterprises, including rural businesses; supporting social housing; and offering micro-insurance.
In addition, Covelo is one of the few providers of student loans. It has not only promoted the creation of a specialized institution dedicated to educational loans but has also contributed its own funds to the project, targeting young students in Honduras in need of financial support in order to finish their studies and/or to progress to a higher or more specialized level of studies. Covelo has lent to approximately 800 low income students who have demonstrated high academic achievement.
Covelo is also committed to the generation of clean energy to serve the needs of non-electrified rural homes. An estimated 1.5 million people, approximately 30% of the rural population in Honduras, do not have access to the national electrical grid. The “Sol y Luz” (“Sun and Light”) project enables households to borrow US $ 1,000 to purchase a solar panel to generate electricity. To date, Sol y Luz has provided electricity to over 750 families in Honduras and Nicaragua. This has allowed these families to extend their study or chore hours. It has also increased their access to radio and television as well as enabled them to charge cell phones and other electronic devices. In short, Sol y Luz has helped increase productivity and made an enormous contribution to improving the quality of life for its beneficiaries. (Learn more about the Sol y Luz project by watching this video.)
At DAMI, we are very pleased to be in negotiations, together with Inter-American Development Bank, to provide subordinated loans to Covelo. Our contribution will help the Covelo team support the 40 microfinance institutions who with whom they work.
Learn more about Covelo by clicking here.