IFC Supports Creation of Microfinance Banking Institution in Honduras

IFC, a member of the World Bank Group, today announced the successful completion of a financing package that helped create Banco Popular Covelo (Bancovelo), which will be the leading microfinance institution in Honduras. IFC will invest up to $2 million in new capital in Bancovelo and provide over $440,000 in advisory services to help the bank streamline and expand its lending operations to low-income entrepreneurs.

Popular, a microfinance entity for savings and loans sponsored by Grupo Financiero Covelo, merged in 2007 with two sister entities to form the new microfinance institution Bancovelo. IFC’s agreement to provide equity for 11.8 percent of Bancovelo’s total new capital enabled it to receive its banking license in December 2007. Manuel Zelaya Rosales, President of Honduras, will host the official launch of the new bank today in Tegucigalpa.

Other new shareholders include Accion International, the Belgium development entity BIO, the Netherlands development institution FMO, and CABEI, with equal shares. IFC led the structuring of the financing package for Bancovelo and will provide the largest contribution of advisory services among shareholders.

Victor Rheinboldt, President of the Board of Directors of Bancovelo, said, “The creation of Bancovelo is a significant step towards expanding access to finance to sectors in Honduras which have been underserved, in particular the small and micro enterprise. We are very pleased with the support that IFC has provided to ensure Bancovelo becomes a strong and sustainable player in the microfinance sector in Honduras. We look forward to the continued support of the IFC.”

IFC will provide advisory services to Bancovelo over a two-year period. The objective is to foster the development of the microfinance sector in Honduras by working with Bancovelo to adopt international best practices and provide access to finance for underserved markets in a sustainable way. It will focus on strengthening several areas, including development of new products, enhancing operational efficiency and helping develop internal capacity through training of loan officers. IFC is increasingly integrating advisory services into its financial sector projects in Latin America, thus helping introduce best practices and increase the development impact of its projects.

Marcos Brujis, IFC’s Senior Manager for Mexico and Central America, said, “IFC’s support to Bancovelo shows our commitment to helping develop a strong microfinance sector in Honduras, an essential engine for growth and for creating opportunities. In a country where micro, small, and medium enterprises contribute about 25 percent of GDP, only about 1 percent of loans to this sector are financed by commercial banks. IFC is keen to continue supporting Bancovelo and help fill this important gap in the country’s banking sector.”

Bancovelo’s new status as a commercial bank will allow it to expand more rapidly and provide a broader range of financial products. The bank has a network of 27 branches in rural and urban Honduras. At year-end 2007, it had nearly 24,000 borrowers, of whom over 69 percent were women. The average loan size is $2,175 equivalent in local currency, and the beneficiaries are low-income people. Bancovelo expects to triple the number of beneficiaries it serves in the next five years.

Honduras is a priority country for IFC, whose strategy there is to promote access to finance by supporting the financial sector and to implement programs for simplifying administrative procedures and business regulations at the municipal level. This will help improve the country’s business environment for small and medium enterprises.

IFC’s total committed portfolio in Central America as of June 2007 was nearly $660 million. IFC is expanding its operations in this region, focusing on supporting regional integration through private sector participation in infrastructure projects. IFC’s strategy also looks to strengthen the financial sector by supporting access to finance for small and medium enterprises, housing finance, and firms involved in agriculture and services to improve their competitiveness. IFC also aims to help companies expand within Central America and beyond.