Financial results for social impact [interview]

For over 40 years, Oikocredit has been successfully combining economic sustainability and social impact. How do you manage to do that?

We focus on both financial and social aspects at all levels of our organisation. Both areas are represented in all of our departments and decision-making bodies, all the way up to management. We manage to create a good balance.

I believe that our clear focus on social impact contributes to our success. This is also what our investors want and it is why they invest their money with us. It is certainly helpful that we are a strong cooperative. Our members act as a good corrective and make sure that we stay true to our mission.

How does maintaining a balance work at the level of partners? Are there projects that are less successful financially than socially, or vice versa?

We always try and find partners who cover both aspects optimally, however, not every project is fantastic in both regards.

For example, agricultural finance is a real challenge. Not many organisations can operate profitably in this sector. On the other hand, the social impact in this sector is huge. That's why we invest in agriculture. It may be somewhat less financially successful but we do this for the social impact and then balance it out against another part of the portfolio that is financially more successful.

But in all cases we have minimum standards for financial and for social aspects, which are actually very high compared to those of other organisations.

Does the fact that investors do not expect maximum dividends (so far, no more than 2 per cent has ever been paid out), contribute to Oikocredit's success?

The 2 per cent is not, and was never guaranteed. In fact, 40 years ago, Oikocredit did not pay any dividends at all. Only from 1989 onwards did we pay a 2 per cent dividend, except for three years when the dividend was only one per cent. But it's true, what really helps is that we have very loyal investors who make their money available for the long term and who are not just in it for the highest return. Whoever wants that goes elsewhere. This enables us to invest as much money as possible in projects and social impact measures.

In June Oikocredit’s members voted to pay out a one per cent dividend for 2017. This decision was made in view of the fact that the cooperative's results are under pressure. What are the reasons?

The main cause is last year's currency fluctuations. Last year, only six per cent of our credit portfolio was paid out in euros, 42 per cent in US dollars and the rest in local currencies which are often pegged to the US dollar.

We know that it is extremely important to accommodate loans to our partners in local currencies. If we made loans in euros, the currency risk would fall on our partners, and they are generally in no position to bear such a risk. We, on the other hand, can bear this risk. We have the necessary size, expertise and a sufficiently large local currency risk fund. Because of the strengthening of the euro over the past year, we had to heavily rely on this fund.

Also, our results are being negatively impacted by the low-interest-rate environment. Our main product, i.e. loans, generated less interest.

We also have quite a few offices and thus also higher costs than others but we remain convinced that our concept of local presence brings a great advantage and want to maintain it. We know what's going on locally and what's happening in the market. Our local experts know the communities in which they are working, and this ultimately also reduces our risks.

What is Oikocredit doing to address costs?

Our updated strategy, among other things, is intended to help us reduce our costs [you can read all about the strategy update in the interview with our Managing Director].

Since we are still in the process of implementing our strategy and will continue this process throughout 2019, our results remain under pressure due to the various factors that I mentioned above. The impact of the changes we are implementing will only be realised at the end of 2019 and we expect an improvement in our financial results after this period.

In the meantime, we are working hard on ensuring that Oikocredit continues to accomplish its mission in the most effective and efficient way possible.  

And what’s exciting about our updated strategy is that we are not only focusing on improving our financial results, but we are also focusing on how we can maximise our social impact. As I mentioned before, financial and social results go hand in hand at Oikocredit and we want to make sure that we are doing our best at all levels of the organisation to make an even bigger impact in the lives of people our partners serve.

What are the key projects that you, as the Director of Finance, want to realise in 2018/2019?

The biggest and most important project is the implementation of our updated strategy.

I would also like to see not only financial figures being reflected in our official balance sheets but also quantifiable results with a social impact. The naked financial figures alone do not sufficiently represent who we are and what we are doing. We have a dedicated social impact research team who visit our partners, investigate, and collect and evaluate data, not only in terms of the number of people we actually reach via our partners, but also the number of women we reach and the results achieved.

You have been working for the cooperative since 2010. What do you like about your work at Oikocredit?

In June, I visited a customer of a microfinance institution in Chennai, India. This customer is running a small shop. Her daughter, who is a university student and speaks English, was present and translated for me. When asked who her role model is, the daughter answered: "My mother." It still gives me goose bumps.

The girl said that her mother showed her how you can successfully change your life. And this is the only reason why the daughter has a better outlook for the future.

Even though we, as Oikocredit, might only be making a small contribution by financing the institution that finances her mother, this is the reason why I come to work every day. What we do here really does make a difference!