Q3 2021 quarterly report: Cautious optimism
16 November 2021 Four times a year Oikocredit publishes key facts and figures on the previous quarter. Here we provide our investors and others with additional background context on developments during the third quarter of 2021.
Interim management ensures organisational continuity
Q3 2021 has proved satisfactory for Oikocredit. Despite the departure of our Managing Director, Thos Gieskes, and of our Director of People & Change, Petra Lens, during the quarter, interim management arrangements have ensured continuity in the Managing Board. Interim Managing Director Mirjam ‘t Lam, Interim Director of People & Change Wilma Straatman and other Managing Board members and colleagues are pleased to see positive developments in several areas of the cooperative.
Maintaining close relations with staff and other stakeholders while embedding management changes has been a priority in the quarter. Two other key objectives were to continue rebuilding the development financing portfolio after the contraction and loss that resulted from the Covid-19 pandemic in 2020, and to further develop our new capital raising model.
Change also occurred at Supervisory Board level, where Nitin Gupta decided to step down for personal reasons, and Joseph Patterson resigned as Chair on 1 October, with Cheryl Jackson (previously Vice-Chair), succeeding him.
Portfolio rebuilding continues
With the global economy recovering from the worst effects of coronavirus, in Q3 the economies of Oikocredit’s focus countries also improved. We are pleased to report that rising demand for lending has led to net growth in our development financing portfolio of 4.8% from € 835.5 million in Q2 to € 875.8 million, representing a year-to-date increase of € 30.7 million. Loan approvals returned to pre-pandemic levels, and disbursements were in line with expectations.
Portfolio at risk, represented by the PAR 90 percentage of loans with repayments at least 90 days overdue (excluding payment holidays), increased slightly from 5.9% to 6.1% as some larger partners fell into arrears. In addition, more serious repayment difficulties, in some cases arising from Covid-19, resulted in several increased loan write-offs. With the vast majority of partners now sufficiently recovered to resume scheduled repayments, only 12 partners remained on ‘payment holiday’ in Q3, representing € 18.6 million (down from € 64.9 million) of the total credit portfolio.
While the equity portfolio has remained stable in size, two new investments were approved in Q3 (year to date: eight investments) and one sale concluded. There was one equity impairment taken earlier in the year relating to a renewable energy partner.
Our number of partners stayed stable at 527 (Q2: 529). The volume of hard currency lending, including US dollar loans, rose a little, especially in Africa and Latin America, where total capital outstanding also expanded. Asia, including India, remained stable. Loan loss provisions on capital and interest and impairment of equity declined from 11.2% to 10.5% of development financing, partly due to portfolio growth.
Total member capital grew from € 1,122.5 million to € 1,125.4 million, reflecting a net inflow of € 2.9 million during the quarter and a total year-to-date rise of € 21.4 million. We are grateful as ever to our investors for their loyalty.
Income growth combined with maintained cost controls delivered a net result of € 14.8 million, a welcome rise from Q2. This figure includes the € 9.5 million one-off release of provisions reported for Q1. Negative developments in the term investments (bond) portfolio, where rising interest rates caused a € 3.3 million loss in value (year to date), influenced the results. There were positive contributions to our result from foreign exchange rate movements and from lower hedging costs due to the reduction in exchange rate volatility.
Among other developments in Q3, net asset value (NAV) per share increased to € 213.87, close to pre-Covid-19 levels. With a return to growth in disbursements, net liquidity reduced from 33.4% to 31.2%.
Other positive developments
Among other positive developments in Q3, we were pleased to carefully resume staff travel,[1] allowing us to visit partners again and bringing together team members from different continents. Members and investors welcomed our Impact Report 2021, which highlights with data and stories how Oikocredit and our partners around the world are supporting low-income people in improving their lives. The webinars about the report that we held were also appreciated. At the Amersfoort office in the Netherlands we have introduced a hybrid working model, where staff are given the opportunity to work half of the time in the office.
In lending, increased demand for credit indicates that Oikocredit’s partners are learning to live with and plan for the implications of the pandemic. Very few partners still require our support under special Covid-19 measures, and there have been no new applications for financial help under the Oikocredit International Support Foundation (ISUP) coronavirus solidarity fund, although this remains open. The ISUP’s new Innovation in Response to Covid-19 programme, launched a year ago, now supports a number of current and former partners’ capacity building projects in addressing problems generated by Covid-19.
More importantly, we have returned to providing onsite and in-person capacity building for partners, partly replacing the online support we were restricted to during the peak of the pandemic in 2020-21. In Q3, we completed the data collection phase of our Client Self-Perception Survey (read more on page 11 of our Impact Report). We are currently collating and assessing the survey findings, which will provide insight into how clients have been impacted by and dealt with the Covid-19 pandemic and other changes that clients have experienced over the past 12 months.
Highlights of our capacity building support to partners in Q3 include: work with 11 coffee partners in Latin America on price risk management (PRM) strategies and receiving funding for the PRM programme to be extended to Africa in Q4; the production of six financial literacy videos in Cambodia; supporting an additional 800 smallholder farmers to plant tea seedlings in Rwanda; and support for an equity partner leading to 15,000 new smallholder farmers subscribing to a weather index insurance product.
We also signed a new loan guarantee agreement with the African Guarantee Fund for Small and Medium-sized Enterprises (AGF), which allows us to increase lending to partners across Africa with higher risks. This agreement includes a grant to strengthen Oikocredit’s work in SME lending. Another loan guarantee programme of benefit to Oikocredit is the India Covid Response Program for Agriculture Transition, which our Indian subsidiary, Maanaveeya, is participating in to address the economic impact of the pandemic on Indian smallholder farmers.
Future outlook
Prospects for Oikocredit’s social investing remain positive, although we remain cautious and vigilant about the economic outlook in our African, Asian and Latin American markets. Unequal and extremely limited access to Covid-19 vaccines in low-income countries is an important concern for us and could result in major new waves of coronavirus. In addition, if governments in high-income countries reintroduce social mobility restrictions, a new global economic slowdown is possible.
We nevertheless aim to continue rebuilding the portfolio, based on our healthy pipeline of further credit and equity investments with current and prospective partners. Our close monitoring of market developments will include assessment of potentially rising interest rates and their possible impact on our term investments. Maintaining portfolio quality will be, as always, a priority.
Today we announced that Mirjam ‘t Lam has been appointed as new Managing Director of Oikocredit, effective 1 December 2021. Mirjam joined Oikocredit in November 2020 as Director of Finance & Risk. In addition to this role, Mirjam has served as Oikocredit’s Interim Managing Director since August 2021. As Managing Director, Mirjam will provide strategic guidance and will work with the Managing Board to lead the cooperative’s operations in support of Oikocredit’s mission to improve quality of life for low-income people through responsible investments.
The Managing Board will also face further changes resulting from our Director of Investments Bart van Eyk’s decision to leave Oikocredit at the end of February 2022 to explore new ventures.
At the forthcoming Extraordinary General Meeting (EGM) scheduled for 2 December, we will introduce our proposed new capital raising model to members and seek their agreement regarding next steps. Also at the EGM, we will present to members an update on the new strategy for 2022-2026. We are already testing some of the innovative propositions we have been developing, which are starting to result in new partnerships, for example in support of advancing education in Africa.
[1] The Covid-19 pandemic has shown that it is not always necessary to travel. But much of our work relies on building personal relationships with partners and visiting them onsite to get a better understanding of their work. We are conscious of the environmental impacts of long-distance travel and work with FairClimateFund in purchasing Fairtrade Gold Standard carbon credits to offset our CO2 and other greenhouse gas emissions, which mainly result from air travel.
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