Investment Grant for the Honduras Global Gateway Green MBIL

Honduras is one of the most unequal countries in the Western Hemisphere. It is also highly vulnerable to climate change and external shocks, which threaten means of production, housing, crops and infrastructure. The agricultural sector plays a critical role in the country’s economy through job creation, rural income, and export promotion. It accounts for 13% of GDP and 35% of the total value of exports. Furthermore, it has significant spillover effects on other sectors of the economy. Nevertheless, unsustainable agricultural practices threaten the relatively undiversified productive sectors and forests, putting at risk the pivotal role that they play in maintaining the biological richness of the region, grabbing carbon, providing water and avoiding soil erosion.

Most businesses in the agricultural sector are Micro, Small, and Medium Enterprises (MSMEs). Honduran MSMEs employ over 700,000 people and contribute up to 25% of the GDP, but lack access to suitable financial products, particularly in rural areas due to their risk profile, susceptibility to climate-related risks, and limited credit information and collateral. Microfinance, which targets MSMEs as well as low-income individuals not served by the traditional banking system, is a key tool in combating social and financial exclusion.

The project aims to provide support to MSMEs as well as households to increase their economic and climate resilience through access to suitable and green financing options to help them invest into alternative, greener and more sustainable economic activities. It supports communities affected by extreme climate events and natural hazards, as well as environmental degradation, as the initiative focuses primarily on the geographical areas of the Yojoa Lake Basin, Sula Valley and Choluteca River Basins, where planned infrastructure projects approved under the Global Gateway Investment Agenda are located. The operation is channelled through national financial entities, which play a critical role in supporting the growth and development of green value chains, particularly in the rural areas, enabling the “green transition” and system-wide change needed in the country, strategically addressing MSME’s critical economic, social, and environmental challenges. These entities provide funds to MSMEs and households to undertake small-scale green investments to limit the effects of extreme climate events and improve resilience and adaptation. Examples for supported investments include water-efficient irrigation, energy efficiency, renewable energy generation, circular economy, more climate resilient crops, investments in climate information services and technical solutions.