Q3 quarterly report: Maintaining stability

Covid-19 impacts continue but are limited

Oikocredit and its partners continued to experience the effects of the coronavirus pandemic in Q3 2020. Our outstanding portfolio of loans and equity investments reduced in Q3 by 9.6% to €856.1 million. More partners requested payment holidays, with the total number of partners extending their repayment periods rising from 112 to 136. Loans where we have agreed to pause repayments now represent 29% of our total outstanding credit portfolio, up from 19% in Q2; this percentage increase is also due to the portfolio’s reduced size. The most affected countries of operation were India, Indonesia and Cambodia. Our more formal measure of portfolio quality, the PAR 90 ratio (the percentage of loans with repayments at least 90 days overdue), deteriorated slightly from 6.7% to 6.9%.

With net income continuing to decrease, albeit we believe at a declining rate, Oikocredit made a net loss during the quarter. This loss was rather smaller than expected and was broadly in line with relatively stable outcomes in terms of evaluation of the portfolio and loan loss provisions and impairments. Our liquidity ratio rose from 25.8% to 31.9%. Results for the quarter were on the whole marginally better than we had feared in the first half of 2020, but still far below what we had planned at the start of the year.

Continued loyalty of members and investors

Total member capital remained relatively stable. A small number of redemptions and reduced inflow in Q3 resulted in a minor decrease in member capital of 0.7% to € 1,131.7 million. Member capital still shows growth for the year overall because of a good level of net inflow in Q1 before Covid-19 struck. The vast majority of Oikocredit’s members and investors have stayed loyal, despite the reduction in 2020 of the dividend for 2019 to 0%, the increased risks in social development financing and the uncertainties around the pandemic and its effect on the financial outlook. Net asset value per share fell slightly from € 210.94 to € 210.54 in Q3 and has reduced by 2% since the start of the year, but now appears to be stabilising. A € 200.00 net asset value per share is the threshold below which Oikocredit needs to pause new issuances and redemptions, and therefore we have continued issuances and redemptions during the quarter.

Responding with vigilance

We again increased provisions for partners’ postponed repayments in Q3, but to a lesser extent than in Q2. We have continued to assess risks that particularly affect partners with whom we have agreed payment holidays. These partners tend to be directly affected by Covid-19 and by in-country restrictions on business activity and dampening of the economy, and for similar reasons they also experience challenges in collecting repayments from their clients because of clients’ reduced economic activities, especially in microfinance.

Towards the end of the quarter, we began to review which partners may be sufficiently recovered or not affected to receive a new loan, and we have cautiously approved some loans as refinancing and even approved a few new partners.

Oikocredit keeps a careful watch on its liquidity, which it needs both to finance new lending and potentially to facilitate redemptions. Also controlling costs is crucial to maintaining stability and enabling us to respond successfully to an uncertain future. We restrict expenditure to what is strictly needed to continue to operate, and very selectively invest in improving our efficiencies and effectiveness, which means that our costs generally remain below the levels of recent years.

Support for partners and staff

We have maintained our intensified contact with partners across our focus regions – Africa, Asia, and Latin America and the Caribbean – to ensure we understand the challenges and risks they face. And we have continued to show partners our commitment to support them. One example is Oikocredit’s CEO Forum for African partners. We have held three online workshops for CEOs of financial inclusion partners to enable them to learn from each other about how to navigate the coronavirus crisis and build stronger businesses for the future. Participants appreciated the personal discussions and sharing of best practices, and we are looking at the value of developing this into a programme offering for partners in general.

In Q3 Oikocredit was selected to participate in a public-private partnership to strengthen the safety nets of 10 million smallholder farmers in Africa, Asia and Latin America by boosting the development of agricultural value chains. The Smallholder Safety Net Upscaling Programme is a ten-year initiative with an overall budget of € 55 million. Oikocredit is one of five impact investors selected by the programme to provide and facilitate technical assistance to agricultural organisations.

Internally, we pay attention to the safety and wellbeing of our central office and local staff. The internal restructuring that we completed in 2019 has proven its value. This reorganisation allowed for more remote working and has enabled us to maintain effectiveness during this unprecedented year, despite reductions in commuting and in-person meetings. We will revise our internal policies on homeworking and work travel to consolidate these relatively positive outcomes from the pandemic.

Future outlook

In the coming quarter many Oikocredit partners’ current payment deferral periods will end. We will see which can resume their repayments and which will need further special arrangements. Because of the direct and indirect consequences of Covid-19, our cooperative is likely to make a loss for the year overall and to see some erosion of reserve levels. The unpredictability of coronavirus, and of its effects on our partners and the wider economy in our focus countries, makes it unusually difficult to forecast what lies ahead. Even when we re-enter positive territory, recovery from the pandemic and its economic impacts is certain to be slow. We will continue to prepare for all eventualities.

There may be a need to respond to further challenges affecting our partners and our markets. But we will also ready ourselves to take opportunities that occur to fund new and existing partners and to further Oikocredit’s mission of sustainably supporting organisations that help low-income people and communities improve their quality of life. The pandemic is also affecting these communities the most, and we think that with our global network we should aim to contribute to the recovery.

In Q3 we also started the co-creation of our new strategy for 2022 to 2026, which we aim to present at next year’s annual general meeting. Together with key stakeholders – including members, investors, partners, staff and the Supervisory Board – we are jointly exploring our long-term vision, purpose, theory of change and strategic choices. We are confident that preparing for a purpose-driven strategy now will help us during the recovery from the effects of the pandemic and allow us to support the transition to a more equitable, just and sustainable future for the people we serve.

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