Q2 quarterly report: Responding with resilience
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 second quarter of 2020.
Portfolio and finances impacted by Covid-19
The effects of coronavirus can be seen across the world, especially in low-income communities. In Q2 2020 Oikocredit and its partner organisations experienced much of the full force of the Covid-19 pandemic and its economic impacts. Timely and sound preparation during Q1 and regular monitoring in Q2 enabled us to maintain control of our operations, and we continued assisting our partners. We did, however, have to lower our expectations about financial results in 2020. Understandably, our development financing portfolio, income and balance sheet were affected. The total outstanding portfolio of loans and equity investments decreased during the quarter by 6.9% to € 947.1 million, as a result of our decision to focus only on existing partners and to be prudent when partners ask for refinancing. Our net interest income reduced accordingly and we made a net loss overall. Member capital declined slightly, by 1.1% to € 1,139.7 million. Net asset value per share reduced from € 213.30 to € 210.94, because of the decrease in income and the relatively stable number of shares outstanding.
Overall, portfolio quality at the end of Q2 remained steady, with PAR 90 (the percentage of the credit portfolio with payments at least 90 days overdue) marginally improving from 6.8% to 6.7%. Regionally, the portfolio was less impacted in Africa than in Asia and in Latin America and the Caribbean, where India, Indonesia, Mexico and Ecuador were most affected. To ease the financial situation of 112 partners, we granted payment holidays (extended repayment periods) for outstanding loans representing 19% of our total outstanding loan portfolio; although we continue to categorise such partners as not overdue in their repayments, we recognise this category as also more ‘at risk’ than before the crisis.
With the effects of Covid-19 now more evident, Oikocredit made increasing provisions for impairments in Q2 despite the relatively stable performance of the portfolio in terms of PAR 90. We monitored our partners’ financial performance and PAR ever more closely and assessed risk in all our markets very regularly. The quarterly outturn was largely as we had anticipated, with an improved liquidity ratio rising from 21.1% to 25.8% as many partners continued to repay their loans on time. We suspended lending to new partners in order to better support existing ones. We were able to maintain a stable investment base despite the contraction in our portfolio and interest income because of fewer redemption requests from investors than expected at the start of the crisis. Regular dialogue about inflow markets with the Oikocredit support associations has helped maintain our links to investors and has kept investors informed about what Oikocredit is doing to weather this storm.
Accompanying partners through the crisis
Oikocredit continued in Q2 to adjust its support for partner organisations across our strategic regions of Africa, Asia, and Latin America and the Caribbean. In addition to granting payment holidays we have also stepped up our partner communications, using information technology in place of in-person meetings, to ensure that we understand how partners are affected by the pandemic and can provide appropriate assistance. By asking questions and clarifying needs, we have been able to tailor our support. Central to these efforts have been our webinars and online encounters sharing advice on business continuity and cash flow, ensuring health and safety of staff and clients, understanding impacts on clients, stress testing, risk and scenario planning, and learning from sector leaders.
We have re-engineered our capacity building programmes, such as the price risk management project supporting Latin American coffee cooperatives, to run without in-person meetings. In India, our subsidiary Maanaveeya supported a comic-style pamphlet to use in roleplay education promoting Covid-19 safety awareness for inclusive finance institutions and their clients. We have also created dedicated webpages of crisis resources for partners.
Partners and their clients have come under pressure to comply with new government regulations relating to total or partial lockdown restrictions on mobility and social gatherings, social distancing, and personal protection, sanitation and hygiene. Here we have increased financial assistance to more vulnerable partners and clients through our coronavirus solidarity fund. The Oikocredit International Support Foundation created the solidarity fund with an initial sum of € 25,000, which has been augmented with contributions from Oikocredit Stiftung Deutschland and Oikocredit Nederland, reaching € 33,199 of funds disbursed in Q2. The fund has helped many partners’ micro and small enterprise clients in the informal sector and in low-income communities with awareness training and the costs of sanitation materials and protective gear, enabling them to keep operating. We have broadened the fund’s objectives to include emergency assistance to at-risk partners and their clients in the agriculture sector as well as in inclusive finance.
With a consolidated financial position, and most partners functioning reasonably well, Oikocredit is usefully positioned to face the challenges of an unpredictable operating and economic environment. We will continue to assess the macroeconomic situation in every country where we work, to identify both risks and potential new opportunities for the future. We remain committed to helping partners as needed and will be increasingly proactive in developing our organisational resilience, agility and responsiveness. We will continue to run regional, cross-regional and more local webinars and online encounters for partners to foster leadership, mutual learning, positive responses and solidarity, while enhancing support to partners in adapting their business models and developing services and products to address the needs of their clients and to better support clients through the crisis.
The task ahead is more a marathon than a sprint, with the economic recovery likely to be slow and potential longer-term negative effects currently uncertain. Meanwhile we continue to improve our internal controls, review our systems and efficiency, and incorporate learning from the first half of the year to respond effectively to what lies ahead. Although the size of our portfolio and income will have decreased for a while, and we won’t reach the growth targets defined before the crisis, we remain close to our markets and ready to assist wherever we can contribute to better outcomes for low-income people.
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