Honduras is a lower middle-income country, with a population in 2006 estimated at 7.4 million and per capita income of US$1,170. Honduras has one of the highest incidences of poverty and inequality in the western hemisphere. The situation was further aggravated by the disaster caused by Hurricane Mitch in 1998. Since poverty is concentrated in rural areas, sustainable rural development—particularly agricultural development for small-scale farmers—remains a key priority.
The objective of the Access to Land (PACTA) pilot project was to address these challenges by testing public and private mechanisms that would enable landless and land-poor peasant families to buy land and establish farm enterprises. It invited interested private-sector lending institutions to finance such land purchases, and used public funds to carry out complementary investments and technical assistance (provided by private organizations) to improve productivity on the newly acquired properties.
The project demonstrated the benefits of enabling small producers to access credit to buy land and set up rural enterprises. Participating private-sector lending institutions provided US$ 3.0 million in loans. This allowed 993 rural families to acquire 2,405 hectares of land.
As a result, the Government of Honduras is scaling up the program.
Highlights:
- The project provided an additional US$4.3 million to the new family farms to establish productive enterprises that generated employment and income for nearly 3,000 other rural families.
- The quality of the loan portfolio is very high, with a 2.7 percent default rate, 15 percent capital repayment, and 25 percent interest repayment. Such portfolio performance constitutes one of the main indicators of the PACTA’s success.
- The project generated a larger offer of credit from private lenders than could be absorbed at the pilot stage. As these lenders gained confidence in PACTA, they gradually improved credit terms and increased their overall commitment.
- To support the new farm enterprises and facilitate knowledge exchange, the project encouraged the consolidation of local networks, which have grown to become the main pillars of program institutionalization.
- The project also provided financing to three community forestry enterprises that manage municipal forestland under long-term concessions. Initial positive results suggest an opportunity to extend PACTA’s model of enterprise formation to such families in possession of forest and communal lands.
The total project cost was approximately US$12.0 million, of which IDA provided US$8.0 million. The Government of Honduras provided US$450,000, including a US$300,000 guarantee fund. Beneficiaries provided about US$550,000 and financial intermediaries US$3.0 million.
IDA played a vital catalytic role. It provided a sound framework to integrate both private investment and public funds in support of initiatives developed at the rural level. In demonstrating PACTA’s viability, IDA has succeeded in benefiting a wider range of the rural poor than was initially envisaged.
Now that the viability of the PACTA model has been demonstrated, the task is to expand it. The Government demonstrated its commitment when the Minister of Finance signed a technical cooperation agreement with FAO to renew administrative arrangements and, more importantly, allocate funds (US$ 3.6 million, from 2007 - 2009). This is insufficient to scale-up the program nationally, but it will sustain operations while the new IDA-financed Rural Competitiveness Project becomes effective. Meanwhile, long-term institutional options for the program are being examined.
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