Q3 2023 quarterly report: Creating more impact despite headwinds
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 2023.
Implementing our 2022-2026 strategy
Implementation of the community-focused approach central to Oikocredit’s 2022-2026 strategy continues. By the end of the third quarter, our community-focused portfolio had grown to € 43.0 million. To assist community resilience building, we have partnerships under development in climate and carbon finance, for example involving the conversion of agricultural waste to productive use.
Our capacity building increasingly addresses climate adaption and rural development needs, such as through our work supporting young leaders in smallholder farming communities. We are also undertaking a growing number of smaller tailored capacity building projects for current and prospective partners, strengthening their organisation or supporting vulnerable population groups in improving their livelihoods.
In terms of building a global impact-making movement, our credit and equity partners continue to grow in number. We have stabilised the anticipated decline in member and investor capital and the loss of some investors arising from our transition to the new capital-raising model. During the quarter, we met with our support associations and Members’ Council to discuss future capital raising and our global learning for transformation and advocacy work. This aims to build awareness among current and prospective investors and others of sustainable development topics and challenges faced by low-income communities and actions to help address global inequalities.
Activities in Q3 to address the third pillar of our strategy – facilitating more direct connections between our main stakeholders – included a visit from the Board Chair and CEO of Maanaveeya, Oikocredit’s Indian subsidiary, to Austria, Germany and the Netherlands. We held meetings for our Maanaveeya colleagues, themed around our work in India, with members, investors, support association, board members, staff and volunteers.
In September, we published our Impact Report 2023 (on 2022). This shows that, for every euro we invest, we are increasing impact in terms of numbers of client households and smallholder farmers reached, and numbers of households gaining access to renewable energy. The report features a section on women’s empowerment: a full 87% of our inclusive finance partners’ clients are women.
The National Contact Point in the Netherlands for the OECD Guidelines for Multinational Enterprises has made public its decision to accept a submission from two Cambodian human rights organisations, LICADHO and Equitable Cambodia, and FIAN Germany. The submission concerns potential non-compliance with the OECD Guidelines in relation to Oikocredit's investment approach in Cambodia’s microfinance sector.
Portfolio development and financial performance
The cooperative’s overall result for the third quarter (net income) was a positive € 4.6 million, up from € 3.8 million in Q2. The development financing portfolio grew by € 56.1 million from € 981.1 to € 1,037.2 million, while credit and equity partners increased from 510 to 526 organisations.
International tensions, social and political unrest, and natural disasters such as earthquakes continue to make the economic context difficult. Oikocredit’s focus regions of Africa, Asia and Latin America & the Caribbean have experienced only modest economic growth. Concern about debt burdens and foreign exchange costs have impaired economic confidence in developing countries. These global dynamics have made credit more expensive, weakened demand for lending in our markets and made it harder for partners to repay loans on time.
In agriculture, climate change impacts predictability (growing and harvesting period, yield, quality), with stronger price fluctuations resulting in increased uncertainty and risk for our end-clients, partners and us. Largely because of these challenges, PAR 90 (the percentage of Oikocredit loans with repayments at least 90 days overdue) rose from 5.6% to 6.8%, above our 6% target. Consequent additional loan loss provisioning of € 7.4 million, and an increase of € 1.7 million in equity impairments, both mainly in Africa and Latin America, influenced the Q3 result.
Our operating income is up from € 31.8 million in Q2 to € 52.4 million. This arose chiefly from higher interest receipts on our development financing loans and on our bank cash deposits and from dividends on our equity investments.
Member and investor capital declined slightly during the quarter (due to redemptions as expected) from € 1,022.0 million to € 1,012.0 million. But capital outflow is stabilising, with 83% of our capital now held under the new model of direct investing in Oikocredit through participations. Only in Belgium and the Netherlands do investors still invest under the former model. Net asset value (NAV) per participation decreased from € 211.98 to € 211.87 because of the negative foreign exchange impact on our member and investor capital and the decline of the restricted exchange fluctuation reserve, partly offset by modest growth in net income.
Operational costs were stable at 3.5% of total assets, slightly better than expected. Liquidity, down from 19.9% to 16.5%, remained sufficient for portfolio growth and redemptions.
Another positive was the improvement in environmental, social and governance (ESG) performance scores among current and new partners, keeping the average portfolio score at 70%, above our ambition level of 65%. In the quarter, we approved 70 projects, with more than 60% of them receiving a strong score and around 10% an excellent score.
Oikocredit is increasing monitoring of, and visits to, partners and performing extra checks on partners with payments at risk and restructuring some current loans of partners that have payment difficulties. We see delays in requests for disbursements where partners do not immediately need approved credit.
Oikocredit will remain alert to headwinds and risks affecting our impact investing and development financing, mindful of our responsibilities to members, investors, partners and other stakeholders. Organisational agility will continue to be important in the face of much global uncertainty.
Working with our local offices, the cooperative has new campaigns under way or launching in Austria, France, Germany, Spain and Switzerland to raise additional member and investor capital under the new model. In the fourth quarter, together with the support associations, we will increase our focus on awareness raising about global justice and sustainability issues.
As part of European Microfinance Week, we participated in many panels and gave a presentation about our end-client survey. We will hold further webinars and publish more communications for members and investors.
We are preparing for forthcoming European Union regulation on deforestation-free products to support partners in reaching compliance. Preparations will also continue for reporting under the EU Corporate Sustainability Reporting Directive from 2026 onwards.
Despite anticipating that tough economic conditions will persist for the rest of the year, and that PAR 90 will remain high, we expect to close 2023 with a positive result.
More information about Q3 2023 is available at https://www.oikocredit.coop/en/about-us/facts-figures/facts-figures.
|Oikocredit in Q3-2023 (PDF)
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