Meeting the demand for equity
Meeting the demand for equity
Stefan Harpe, manager equity investments
Oikocredit has currently invested € 48 million in 45 organizations and intends to increase this to € 70 million by 2015. What’s behind this growth and what possibilities do equity investments hold? We recently spoke with Stefan Harpe, manager equity investments, who established and with his colleagues built up the equity portfolio at Oikocredit International.
What’s the difference between equity investments and loans?
“When we invest in a company we are true partners, tied in to the fortunes of the company. Loans pay regular interest and have a fixed repayment period. Equity investment on the other hand is long-term risk capital. Equity is riskier in that sense.”
Why is Oikocredit nevertheless increasing investments in equity?
“Many partners ask us if we are willing to become an equity partner. They need capital to grow, and we take an active role in that. We provide governance support, advice, networks and skills in managing companies. We do everything to strengthen our partners.”
For example with Barefoot Power ...
“It started as a two man operation using personal savings and the support of friends and family to develop solar lamps that were safe and affordable and could replace dangerous kerosene lamps.
We met Barefoot in 2007 and invested an initial € 60,000. By May 2012, Oikocredit had increased its stake to € 630,000 in equity and additional operating capital in the form of a credit line.
We support the development of the company strategy through a board seat. Today, Barefoot Power has 50 employees across Australia, China and Africa, and over 2,000 small businesses are selling solar-powered lamps and recharging services for mobile phones. Their lamps are used by more than 400,000 households in almost 40 countries.”
So, new investments do not only arise from companies that approach Oikocredit?
“Many of our equity investments are with partners that we have known for a long time, but we certainly look around ourselves, and many contacts arise through word-of-mouth. If we are successfully active somewhere, word soon gets out.”
There have been concerns that large investments in larger companies might change the character of Oikocredit and dilute its mission. Is this so?
“On the contrary, our ambition is to promote development. The larger the socially minded company, the greater the possibilities and potential for social impact.
Banco FIE in Bolivia, for example, where we still have 7%, has grown from its early days as NGO into a bank with a portfolio of over US$ 760 million.
With this expansion, customers now pay less interest, have more branches in their neighbourhoods and far more services, like savings accounts for example.”
Has Oikocredit ever declined an equity investment?
“Yes, we cannot invest in all good opportunities, and often do say no. We only commit ourselves to companies after an extensive evaluation visit and confirmation of a clear social mission, institutional culture, management quality, and with the capacity to grow.”
What skills are required to implement a strategy to expand equity investments?
“Equity investment demands intensive commitment from Oikocredit staff. Most new equity investments involve a seat on the board of directors.
We are neither specialists in individual areas, nor experts in coffee, cocoa or mangoes, but we do have a high level of general corporate finance and business skills in how to develop strategies and guide a company to success. And we have people who can listen, who are credible and sensitive to local conditions.”