Q3 2022 quarterly report: Moving in the right direction
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 third quarter of 2022.
Despite continuing market uncertainty, Oikocredit delivered an improving performance in Q3 2022. Our development financing portfolio of credit and equity grew, improved in quality and generated a net income increase. The realisation of final losses incurred by our term investments (bonds) portfolio totalled € 14.8 million, as we completed the portfolio’s sell-off in the quarter. The total realised loss on the term investments is less than we anticipated at the end of Q2.
These factors together generated a net financial loss of € 5.2 million for the cooperative, significantly less than the € 9.1 million loss in Q2.
At the macroeconomic level, rising inflation and interest rates have affected our partners, many of which have become more hesitant to request credit. Members and investors have reduced the amount of capital available to us, but less than anticipated. Overall outcomes in the quarter were relatively balanced, considering market conditions.
Development financing and capital inflow
Outstanding loans and equity investments grew slightly to € 1,049.3 million (from € 1,014.7 million in Q2). The vast majority of our 513 partners (up from 509 in Q2) have resumed business as usual and are no longer operating under Covid-19-related constraints.
Net income from the portfolio increased. This resulted mainly from rising interest rates and from foreign exchange effects. Strengthening of the US dollar benefitted our portfolio in Latin America & the Caribbean, and most of our agriculture portfolio, all of which we hold in US dollars and dollar-linked currencies.
Economic conditions varied across regions. In Africa there was an uptick in the cost of hedging. Given the volatility in financial markets, Oikocredit constantly reassesses its hedging strategy.
The portfolio at risk PAR 90 ratio (the percentage of loans with repayments at least 90 days overdue) improved, from 6.8% in Q2 to 5.0%, below our 6% target threshold. Provisioning remains at a comfortable level with loan write-offs being significant, although in line with expectations.
Our member capital reduced slightly, as anticipated, to € 1,120.9 million (from € 1,125.6 million in Q2). Inflow decreased as regulatory restrictions came into force in Germany, our leading inflow market. However, we saw relatively few redemptions.
The combined effect of the improved result (less loss) and reduced member capital caused net asset value (NAV) per share to rise from € 211.28 to € 211.66. Liquidity remained sufficient at 15.7% (Q2: 18.6%).
Oikocredit made no equity sales during Q3.
Social impact: measuring, reporting, learning and improving
We were very pleased to launch our Impact Report 2022 in Q3. This shows that Oikocredit’s inclusive finance partners reached 38.2 million clients in the past year (up from 32.2 million the year before), of whom 81% were women and 61% rural dwellers. Our agriculture partners reached 579,000 farmers. Oikocredit’s funding enabled our renewable energy partners to bring clean energy access to 43,000 households.
Our second digital end-client self-perception survey is progressing well. This is a truly collaborative project, with Oikocredit and financial inclusion partners gathering and analysing evidence from clients about how our work helps them improve their lives, including our contribution to increasing their resilience to unexpected events. So far, 19 partners are taking part in the survey with 16,666 clients interviewed so far.
Strategic and organisational developments
We are taking forward a number of community-focused initiatives under Oikocredit’s new 2022-2026 strategy. During the quarter we established our plan to create an in-house innovation hub to support the development of new products and services under the strategy that will help communities build resilience.
Work on the new capital-raising model continues.
On 1 July we announced the creation of the new Executive Committee to further strengthen the leadership of the organisation and execution of the strategy. Our Supervisory Board in its new composition met for the first time face to face in Amersfoort, where board members received an induction into the work and organisation of Oikocredit.
During the quarter Dave Smit was appointed our new Director of Impact Investing. Formerly with the Dutch entrepreneurial development bank FMO, Dave has joined the Managing Board and Executive Committee, completing our governance structure.
We are continuing with hybrid ways of working post-Covid-19, combining office and home working at Amersfoort and in other offices.
Material events post-Q3
Members at the Extraordinary General Meeting on 14 October endorsed the new capital-raising model and agreed the cooperative’s new articles of association. We are preparing a new prospectus for investors.
During the transition to the new capital raising model, Oikocredit will have access to a standby credit facility to manage the liquidity of the cooperative
Indian microfinance organisation Fusion, whose strong growth and social goals we have supported since 2010, has launched its initial public offering of shares on the National Stock Exchange of India. We have placed our shares in Fusion up for sale.
Oikocredit expects its net income to continue to improve in the final quarter of the year, despite the global economic uncertainty, benefitting from the cessation of term investment losses. We will continue to monitor the size and quality of the development financing portfolio, keep our costs and margins under control, and maintain prudent provisioning levels.
Rising inflation and food and energy prices are likely to make many partners cautious about new borrowings, although partners involved in coffee and cocoa production may benefit from increasing crop prices.
Work on our end-client survey will include data analysis, face-to-face workshops with Latin American partners and a study of the aggregate survey data for publication in early 2023.
With forthcoming EU legislation on climate and forest protection, Oikocredit will need to consider implications for and with partners. We see our support for partners to build resilience at community level as central to our future work and will communicate our 2022-2026 strategy more actively and in more detail to stakeholders in 2023.
We anticipate the new capital-raising model will help generate increased capital inflow in our main capital markets in 2023 to support our strategic ambitions.
More information is available at Oikocredit Facts&Figures Q3-2022.
|Oikocredit in Q3-2022 (PDF)
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