It’s more than just finance [interview]
Oikocredit just published its financial results for 2018. For a deeper look at the results and insights on how the cooperative is working towards improving its future results, we interviewed Oikocredit’s Director of Finance & Risk, Laura Pool. In the interview Laura also explains why providing expertise and using the right financial instruments can make all the difference.
What motivates you to work for Oikocredit?
I believe that our work has an impact. At Oikocredit, it’s more than just investing and lending. We care about our partners and the work they are doing.
I have a lot of experience with financial institutions and I’ve seen how providing expertise and using the right financial instruments can make all the difference. This is what we do for our partners. They are the ones making a difference in their clients’ lives, so equipping and supporting them is vital. Our strong local presence helps us do this.
I also enjoy working with a diverse group of colleagues in our international office and environment. Every day I’m able to learn how people from various countries across the globe do business and think, and I find that fascinating.
Oikocredit just published its financial results for 2018. What were some of the key highlights?
We saw our membership capital growing, and with that, our balance sheet. There has been significant growth in our financial inclusion and agriculture portfolios, and the overall development financing portfolio surpassed the one billion mark for the second time.
The more we grow, the more we can support our partners to make a positive impact in the lives of low-income people across Africa, Asia and Latin America. As a result of our new hedging policy, we managed to greatly reduce the negative impact of foreign exchange fluctuations compared to 2017.
Our total results continue to be affected by the low-interest rate environment and are a modest 1.3 million after allocation of funds. But we anticipated this, knowing that we would need time to reduce our costs and improve margins in our portfolio as a result of our updated strategy.
Why did Oikocredit introduce a new hedging policy?
Under the new policy we hedge most of our foreign exchange exposure with third parties. We do this to limit the negative impact on our results that currency fluctuations can have.
This is significant because we want to continue to offer our partners loans in their local currencies. This protects them from currency losses caused by devaluations which they usually can’t protect themselves against.
In the years until 2017, we turned to our internal ‘local currency risk fund’ to offset the effects of currency fluctuations. However, the fund was almost completely depleted over the past years.
At Oikocredit, we’re passionate about supporting our partners according to their needs, wherever possible. The new hedging policy enables us to continue to do that.
Which measures are you taking to improve Oikocredit’s financial results going forward?
Our updated strategy, where we decided to focus on three sectors and 33 growth countries, is the main step we’ve taken to address this. And combined with that focus, we aim for growth along with cost reduction. There is a good balance that we need to strike in order to continue to serve our partners and have a local presence, while being as efficient as possible.
Improving our margins on loans to better reflect the costs made in order to make the funds available is also another area that fits into our overall strategy. This will help us to be more financially stable and to be in the best position possible to support our partners. We will also continue to invest in equity, which generally produces a higher return. Equity is riskier, but with the growth of our total portfolio we are able to take additional equity on board.
Can you see the implementation of the updated strategy already affecting Oikocredit’s financial results?
We already see a small reduction in costs and a gradual improvement in margins. But the implementation of the strategy is ongoing, so we really plan to see the effects of the changes at the end of 2019.
You can read more on these changes and how they will impact Oikocredit in this interview with our Director of Investments, Bart van Eyk.
The Managing Board is proposing a dividend of 1%. How did you arrive at this proposal?
This proposal was made very much in the cooperative spirit. Financially we can afford to pay out a 1% dividend, but we didn’t only look at this from a financial perspective. We also considered what would be a better solution for the long term, especially for our members and investors.
The Managing Board anticipated a low net income and as a result, we expected that we would need to pay the majority of the dividend out of the reserves. We then had several conversations with our Support Associations and members to investigate various options including no dividend, a 0.5% dividend, a 1% dividend etc..
We asked for feedback on how members and investors would respond to these options while also looking at the financial resilience of Oikocredit.
The 1% dividend is a proposal from the Managing Board, endorsed by the Supervisory Board. However, the final decision on the dividend is always made by the members of our cooperative at the annual general meeting in June.
In Oikocredit’s updated strategy, it states that social impact comes first. But is that getting in the way of Oikocredit’s financial success?
I’m actually convinced that the two – social impact and financial sustainability – go hand in hand. We believe that a multidimensional approach delivers the best results.
We look at both the social impact of our partners, and their risks and returns. It’s not sustainable or helpful to an organisation if we see that they are not going to be successful in the long run and still invest in them.
There are definitely times that we take a higher risk financially because some organisations focus on achieving a really high social impact, but we try to have a good balance. In these instances, we work with our partners to help them improve their risk management and financial sustainability. A great example of this is our Price Risk Management programme.