Fundación Covelo and Credit for the Poor

Fundación Covelo and Credit for the Poor

By Wendy Griffin

Since I began to work with ruralHondurans in 1987 , I have been interested in credit for rural people. Farmers everywhere have issues of how to get money to keep alive and especially meet emergency expenses like a sick wife or a broken machete before the harvest comes in and they can sell it.

After Hurricane Mitch in1998 my interest switched to how can people get money to start or restart small businesses?  I read about Fundación Covelo get $25 million and went to their Comayagüela office to find out about their loan program in the 1999-2000 time period. I was very intrigued by the fact that it was headed by Adolfo Facusse, a member of Miguel Facusse’s family.  While the poor could probably benefit from the Facusse family’s business acumen, it is not the first family that might come to mind in Honduras as wanting to help the poor.

At that time they did not lend on the North Coast, but later they expanded to have a Tocoa, Colon office. Some of my Garifuna friends went tofind out about the loans, but only one of them took the loan for an already existing business.  The terms they reported then were the same I was told earlier in Comayaguela. Since Fundacion Covelo has changed and there is also now a Banco Popular Covelo. 

 In the list of the 10 families who financed the 2009 coup against Mel Zelaya published in Vos el Soberano, three members of the Facusse family appear with their business affiliations—Carlos Flores Facusse, the former president of Honduras and owner of La Tribuna Newspaper, Miguel Facusse of Corporacion Dinant, and Adolfo Facusse of Banco and Fundación Covelo. No supporting evidence is presented in that particular Vos el Soberano article, but that online newspaper covered the resistance to the coup in depth. The ten families are mentioned in Tanya Kerrsen’s book Power Grab, so it is good to know who they are and what they do for a living. She comments that that coup seems to confirm the theory that unjust food systems spawn unjust or undemocratic governments.

Fundación Covelo started as a Project of ANDI the National Association of Industrials, one of a number of conservative  organizations which are designed to help organize the voice of the people who head private Enterprise in Honduras. Just as workers, women, Indians, Blacks, gays, rural people have social movements, the right also has social movements and they tend to have more power and more money.

Starting a small business has been studied in the US which has a signficantly more robust economy than say Trujillo, Colon.  Often in the US a small business is doing good if it even breaks even at the end of the first year, not showing any profit at all. A good sucessful small business in the US can hope to make about 8% of profit a year after that, said small businessman Lew Merrick.  A sucessful business means that it is still operating 8 years later, he explained.

In other places  like Pakistan the idea of small business loans to the poor like Grameen Bank have taken off.  In Honduras CARE had a small business lending program  in Southern Honduras which they said was sucessful, but they did not define sucessful. Most places seem to judge sucess by repayment rate as opposed to whether or not the person was able to stay in business.

To deal with the issue that poor people couldnot be expected to repay a large loan, Fundacion Covelo loans were capped at $300. For businesses my Garifuna Friends wanted to start like a Wood working shop or a bakery, $300 was not enough.

To deal with the concern that poor people might not pay back the loan,the loan was made for only 6 months, and the repayment had to begin within two weeks of having gotten the loan.  The interest rates were high around 26% although financial loans in Honduras can often legally be 50% per year, and loan shark rates can be sky high like L100 a day for every day you are late repaying a L3,000 loan for a month.

Most loan sharks and financial loans require colateral like land titles in Honduras. For example, to build a house, usually people have to buy the land somehow,and then take a loan out against the land to build the house.   It seems to me much lending in Honduras is purposelessly designed to swindle people out of their land for a song.

Fundación Covelo did not require that type of colateral but rather you had to sign loans together with two other people and you each guaranteed to repay back your loan and the interest without defaulting, and if the other person defaulted to repay their loan, too.

So not only do you have pay back more in interest than you could conceivably make in profit during that time, but you run the risk of having to repay the other person’s loan too. Even worse what happened to my Garifuna Friends is that the woman who was sent out from Covelo to collect the loan money would say, Fijase,I forgot the receipt book, but justgive me the money and I will give you the receipt later. Of course, she absconded with the money,the people had no reciepts to show, and one of the people could not pay back their loan at all, and my Garifuna friend actually died before it was all straightened out.

In Trujillo, the women who did take out the loan and paid it back usually bought lottery tickets to resell, so while they made money and sucessfully paid back the loan, the burden of Garifuna women’s gambling on lottery tickets was a burden to their family’s already skaky economy. The lottery money in Honduras goes to PANI (Patronato Nacional de la Infancia), which once in 30 years of working with the rural poor I have heard of some children getting a benefit from PANI, (Maya Chorti children at one school got shoes once.)  PANI in spite of its name does support the old age asylym in Tegucigalpa.  

Some Ladina women I met did try once to get a Fundación Covelo loan, for example to sellused clothes in Trujillo, but they said they were just working to repay the loan, so after they got out from under the loan, they closed that business. Other Garifuna men and women who knew how slow business was in Trujillo did note ven try to get the loan, feeling they could do better just running their small business like making ice cream or a  small store called “pulpería” without it. I have not heard one happy Fundación Covelo story, but this may be because so few people thought it worthwhile to even try in Trujillo’s slow economy.

I did go into several Banks and cooperatives in La Ceiba last year and ask about their small loans to start up businesses. Basically most were not interested in loan to start up businesses.  I have known two Garifunas who took out loans against their homes to start a small business. One in San Juan Tela tried to start a disco with her puerto Rican husband, but it failed and the bank sold the land to the Greek Restaurant owner of El Pescador in San Juan on the beach.   They were renting in La Ceiba the lasttime I Heard. Another bought a taxi to try to live as a taxi driver, but his neighbors were worried he would lose his home, which they considered an unacceptable risk. 

In many Honduran cities,the smallbusiness owners have to pay protection money on top of their own expenses,and this has led to more than a thousand small businesses to close, and many people can not dare to start a new business in the current economic and security climate in Honduras’s bigger cities.