Oikocredit: A Seasoned Veteran of Social Finance

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Oikocredit: A Seasoned Veteran of Social Finance

August 1, 2013 at 12:17 PM - by Nandy Heule - 0 comments

Oikocredit - Investing in people

Although conserving a low-profile, Oikocredit, a social investment fund managed by non-profit financial cooperatives, has been in Canada for 25 years and exemplifies an experienced microfinance model in the social finance landscape. Oikocredit is an international financial cooperative with members across Canada and regional offices in Halifax, Toronto, Calgary, and Victoria.

Founded in 1975, Oikocredit International is based in the Netherlands and has offices in 36 countries. The cooperative invests in almost 70 countries and works with almost 900 development partners around the world. In 2010, the organization surpassed the CAD$1.4 billion in accumulated loans and investment capital provided to disadvantaged people since its inception in 1975. Only until very recently, it relied completely on volunteers to attract investors.

In 2011, Oikocredit reached 26 million clients by extending loans to microfinance institutions and other partners. Over 80% of these clients are women and over 50% live in the countryside. Countries with highest capital outstanding are India, Bolivia, Paraguay, Cambodia and Peru.

Oikocredit is rooted in the World Council of Churches and its first investors were churches and para-church organizations. The fund has never denied an otherwise eligible person or organization for a loan or investment opportunity due to religious adherence.

Oikocredit’s Investor Profile

Investors in this fund provide patient capital for international development. They expect steady financial returns as well as social returns. Capital is invested in micro loans, fair trade, workers’ cooperatives, and small to medium size enterprises without sufficient access to banking services. However, an investor’s portfolio is geographically diversified; investors cannot choose what country or project to invest in. The reason being it is much less costly to manage, and it spreads the risk across the portfolio.

Canadian private and institutional investors contribute just under CAD$7.2M to the international Oikocredit portfolio with CAD$675 (Euro520M) outstanding as of June 2012. Other capital is raised primarily in the United States with USD$22M and Western Europe, particularly Germany and the Netherlands.

UMFIRecipient Profile

An example of a recipient organization is Upland Marketing Foundation Inc.(UMFI) , a social enterprise in the Philippines that receives working capital from Oikocredit to help small-scale Filipino farmers meet the growing demand for organic products in the country’s capital Manila and other major cities. As a fair trade marketing firm and distributor, UMFI works with about 60 community-based enterprises operating in 17 provinces by packaging, merchandising, and advertising their products. Oikocredit financing enables UMFI to expand activities and develop new merchandise which diversifies its product lines.

Investment approach

The fund screens development project partners to assess their commitment to environmental, social and governance best practices for their industry. This includes adherence to client protection principles to ensure microfinance products are contextually appropriate.

Finally, development project partners, including microfinance institutions, can obtain capacity building grants to strengthen their ability to build supply chains, obtain fair trade designations, and improve client-focused financial infrastructures.

Donations will remain important to provide health care, education, and emergency relief during humanitarian disasters. However, when communities wish to achieve economic growth and build productivity, giving credit (a loan), equity or loan guarantees is often more effective than giving a donation, because then there are no givers or receivers. Rather, business partners agree to make a deal and become mutually accountable. All partners involved have vested interests in making the deal work out well.

Risk management

All investments involve some element of risk. However, in practice, Oikocredit has an impeccable record of preserving and growing investors’ capital. Next time, we’ll discuss Oikocredit’s approach to risk management in detail.

Investors can buy Oikocredit bonds across Canada at 1.75% for a five year term starting at $250. Shares can be purchased in B.C. and Atlantic Canada. Other investment products are available to institutional investors.

This post was originally published on socialfinance.ca.

Photo credit: http://www.flickr.com/photos/re-visionlabs/4545480080/


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