Interview: Swift action safeguarded results
Mirjam 't Lam, Oikocredit's Director of Finance & Risk
Oikocredit is getting ready to publish its Annual Report 2020, so we sat down with Mirjam ‘t Lam, Director of Finance & Risk at Oikocredit. In the interview, Mirjam gives us an overview of the cooperative’s financial results and shares about joining Oikocredit in the midst of the global Covid-19 pandemic.
How has the pandemic affected Oikocredit’s 2020 financial results?
The pandemic made it a difficult year for everyone, and Oikocredit was no exception. Due to the pandemic we had to make relatively quick decisions on how to steer our business early on in the year, not knowing what the future would look like.
For example, we decided not to finance new partners and focused on supporting existing partners in the first half of the year. As a result of this decision, Oikocredit’s partners showed resilience but the value of the portfolio decreased by more than 20%. However, we see a lot of support needed to rebuild economies in the countries we are active in, so we are preparing ourselves for that.
We maintained high liquidity to support our business and focused on protecting our capital while supporting our partners. With increased monitoring and more stringent guidelines, we worked hard to protect the quality of our portfolio.
What does this mean for Oikocredit’s bottom line?
The combination of all those decisions negatively affected our bottom line. There was also a foreign exchange rate loss of € 11 million. This resulted partly from ongoing appreciation of the euro, and to a lesser extent the US dollar, against local currencies in which we make many of our loans and investments. We provide about 50% of our loans in local currencies.
As a result, we made a loss of € 22.2 million. That’s why the Managing Board, with support of the Supervisory Board, has proposed a 0% dividend for 2020. It’s been a strange and difficult year for all of us and we’re thankful for our investors’ support and understanding.
Oikocredit also has reserves in place that enabled us to absorb the loss for the year. Our net asset value per share still shows a value above the issuance price. The stable capital base combined with the current liquidity enables Oikocredit to continue to support share issuance and redemptions and at the same time have the ability to rebuild its portfolio in a sustainable manner.
What steps that Oikocredit took in 2020 stood out to you?
I was impressed with the measures Oikocredit had taken when I started in November. From a financial perspective, I believe that Oikocredit took the right decisions early on. We didn’t only look at how we could financially safeguard Oikocredit – we prioritised our partners, putting social impact at the forefront.
At the start of the pandemic we were already investigating different ways we could support our partners and took swift action to help them. We provided payment holidays, organised webinars, constituted the solidarity fund and took more initiatives to support our partners through the crisis [read more about these initiatives via the designated web page]. All of which our partners have been very grateful for.
I was also impressed by the steps we took to regularly inform our investors and members on our performance and initiatives. With our focus to preserve liquidity, we could all (investors, partners and Oikocredit) get through this together. The stability of our member capital in 2020 shows the loyalty of our investor base. They decided to weather the storm with us so that we could continue to carry out our mission to support our partners who are working hard to help improve the lives of low-income people – which is even more crucial in times like these.
Was this expected and will Oikocredit need to take any additional measures?
We knew that the pandemic would impact our work. This was expected and communicated to our members and investors throughout 2020.
At this point in time, I don’t think we have to take additional measures but we should not lower the fences on what we are currently doing in terms of monitoring partners as well as informing our members and investors. What’s most important is that we continue to engage with our current partners, taking the right steps to support them as best as possible and at the same time look for new partners and opportunities to put the entrusted capital to work in a social and financially sustainable manner.
How is the pandemic affecting our partners and investors?
Different types of partners are being affected in different ways. Our agriculture and renewable energy partners have been less affected than our financial inclusion partners. It’s small and medium enterprises (SMEs) that are struggling the most. In general, we experienced a decline in demand for credit as partners applied the same caution we did. This is why it’s important for us to keep assessing our partners’ needs and the circumstances in which they operate, and to provide support wherever we can.
We know that the pandemic affects everyone, including our investors. The majority of our investors have remained loyal, evidenced by the stable member capital position over 2020 Our investors stood by us during this incredibly challenging year which is a sign of their compassion for our partners and their clients. They understand that the work we are doing is extremely important, especially during these unprecedented times.
How will Oikocredit move forward as the pandemic continues?
The full impact of the pandemic is still undetermined so we need to be aware of this, but amidst these uncertainties we are developing plans and engaging with our partners to support them and their communities. We want to help them overcome the effects of the pandemic and become more resilient.
This is also what we are looking into with our new 2022 to 2026 strategy. We will take a broader look at how to enable our partners to improve the lives of the low-income people they serve, for the long run.
How long will it take for Oikocredit to recover from the financial challenges that came with Covid-19?
In 2021, we will still be affected by Covid-19 but not as severely as 2020. We also have a better understanding of how the pandemic has impacted the economy. With an adequate level of provisions in place and signs of recovery in the development finance portfolio, we anticipate to show a positive result in 2021 – albeit modest. I say modest because the sharp decline in the developing financing portfolio has affected our top line income. With growing the portfolio in 2021 to previous levels, we anticipate that in in 2022 we will be back on track.
What has encouraged you during this unprecedented time?
The passion and compassion of people across Oikocredit’s network in inflow, outflow, staff and others, along with the work that Oikocredit does to support its partners, has very much encouraged and motivated me. It doesn’t matter who you talk to at Oikocredit, whether it’s a member, someone from a Support Association, an employee, or a partner, everyone is united in the fact that Oikocredit’s work is meaningful.