Government blended finance program in Honduras

A blended finance government program enabled the smallest most disconnected SHFs in Honduras to renovate their land

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  • R&R type Loan based renovation
  • Country Honduras
  • Costs USD 12.7 millions
  • Dates 2007/08 - present (no set end date)
  • Borrowers SHFs producing <1.5 tons (phase 1)
    SHFs producing <3 tons (phase 2-4)1
  • Currency HLN (Hondura Lempira)
  • Tenor 6 years
  • Grace period 3 years
  • Interest rate 0% 2
  • Loan size USD 540 - USD 860 3
  • Default rate Average 30% 4

Project Context

  • Coffee trees in Honduras have been affected by La Roya and about 60% have passed their productivity.

Objectives, Activities, and Results

  • The PAPP was created following a government decree on the reactivation of the coffee sector5.
  • The program targets a reduction of the poverty at farmer family level through an increase of revenues from coffee production. The PAPP is a three phased-program.
  • 22,827 SHFs were reached and 15,500 ha were renovated.
  • Value creation: increased yields of least productive SHFs and improved livelihoods.
  • Value capture: the program finances a public good. The value is yet to be captured by the financers.

Project Context

Management of the three R&R Components




Challenges faced

SHFs need renovation package including upfront inputs (seedlings and fertilizers) and ongoing inputs (fertilizers).


80% of the loan value is used to pay IHCAFE for inputs (seedlings and fertilizers). IHCAFE recommends varieties produced by local institutions and distributes them to farmers. The remaining 20% are used to pay for labor costs.



Fideicomiso Cafetalero.

Challenges faced

The PAPP serves the farmers with the lowest financial capacity. Default rate averages 30%.


Loans are highly concessional. The Fideicomiso-IHCAFE absorbs financial losses. The PAPP tries to improve its recovery rate. It is currently implementing a study6 to segment defaulting farmers, to understand causes of default and to design adaptation strategies.



IHCAFE agencies7

Challenges faced

The least productive SHFs have the highest TA needs. The cost of TA is higher for the bottom of the pyramid.


IHCAFE delivers TA to farmers through individual or group training. The PAPP wants to develop a differentiated Technical Assistance and Capacitation plan to better understand the personalized needs of farmers.

(1) On average, a production below 1.5 tons corresponds to a farm size below 1 ha.
(2) Interests are fully subsided by the IHCAFE and the Fideicomiso Cafetalero.
(3) HLN 12,500 to HLN 20,000.
(4) Default rate were higher during the first phase of the program (42%), 26% during phase 2, and 6% during phase 3.
(5) Decree N.56-2007, Ley de Reactivacion del Sector cafetalero.
(6) The study is supported by Nestle.
(7) IHCAFE is covering Honduran territory through a network of 7 regional agencies, 50 extension services agencies with 100 technical officers and 60 para-technical officers and 8 forest engineers.

Lessons Learned

  • Reaching SHFs at the bottom of the pyramid requires a specific program design that cannot be made on a commercial basis
    SHFs reached by the PAPP have low or no connection to the market and have a low capacity to repay their loan. A program targeting this category cannot reach commercial viability. It should aim at creating positive social and economic impact.

  • Technical assistance for these beneficiaries should be intensive and designed
    Providing TA to SHFs at the bottom of the pyramid is costly. Understanding precisely their needs and how to best answer them is crucial to reduce the costs of the project and to ensure a successful implementation.

Learn more and get involved

There is a lot of work to be done to ensure the long-term supply of coffee from countries where the crop has long shaped the social and economic fabric. Learning to extend the life of their trees and improve yields helps farmers stabilize annual production and in turn, income, while the rest of the world benefits from a steady supply of quality coffee. Continue on to learn more about the immediate attention and action that is required to make this a reality.