Operating in the new normal

March 24, 2020 at 6:43 PM - by Abhishek Bhasin - 0 comments

Oikocredit is a global grassroots movement that was established in 1975, with the mission to help the marginalized population in the global south. The drivers leading to the formation of Oikocredit are relevant, even in the present day.  For instance, global inequities from wealth distribution to gender and race are rising and there is a lot of turmoil around the globe. However, we all live in the hope for a better tomorrow which means a stronger need to come together and collaborate. One such example of global cooperation is UN Sustainable Development Goals. The goals outline targets and the need for different approaches including innovative financing to solve social & environmental challenges. There is a tremendous opportunity to open up $12 trillion market opportunity and change the narrative around growth and inclusion through investments in SDGs (Business and Sustainable Development Commission, 2017; Better Business Better World; Report of the Global Commission on the Economy and Climate, 2018).

The uncertainty that has been caused by the health pandemic further exposes the already glaring fault lines of what we face as humanity. Millions of vulnerable people just getting by on a daily basis are at the risk of being lost as social distancing is a luxury that they cannot afford. Given the sudden drop in economic activity, it is an urgent imperative to create a sustainable path as we manage our way forward.

 But what is the real problem?

Key Challenge: Financing Sustainable Development

SDGs highlight the funding gap of US $2.5-3 trillion annually (UNCTAD World Investment Report, 2014) to achieve the global goals. As well, the UN identified a range of potential issues in funneling investments to SDGs:

1. Rising inequality, impact of war, conflict and climate change
2. Weak financial systems and limited institutional capacity
3. Misaligned incentives, weak regulatory framework
4. Issues around identification, measurement and reporting

UN released a 4 year Strategy for financing the 2030 agenda for sustainable development in September 2018. This is focused on 3 key areas:

1. Aligning global economic policies and financial systems with the 2030 Agenda
2. Enhancing sustainable financing strategies and investments at regional and country levels
3. Seizing the potential of financial innovations, new technologies and digitalization to provide equitable access to finance.

Given Oikocredit’s role as a social investor coupled with our vision of creating a just world, the organization is  very aligned to the UN’s focus on financial innovation and digitalization.

Oikocredit: From Debt to Equity investments

Oikocredit is one of the largest social investors with US $1.5BN in assets and over US $1.0BN in outstanding developmental financing. With more than 57,000 investors it is truly a cooperative movement, with a strong gender lens, focused on providing debt and equity investments in the following areas across the developing world: Financial Inclusion, Agriculture and Renewable Energy.

Here are some examples from the field:

1. Supporting financial inclusion through digitalization:

The digital revolution is expanding the range and delivery of financial services to those traditionally overlooked by banks with new digital payment platforms. Musoni Kenya Microfinance is the world’s first 100% cashless MFI and with help from Oikocredit conducted training in Client Protection Principles to indicate a strong commitment towards serving and protecting the low-income clients it serves. Oikocredit made an equity investment in 2015 to support Musoni in scaling up its reach to a wider underserved, underbanked section of the society. Perhaps add info about the results of the investment? How many more people were they able to reach?

Oikcredit strongly supports SMEs across Asia, Africa, and Latin America. We recently teamed up with Incofin to raise US$8 million for Colombian Fintech Sempli to help the organization provide more loans to SMEs through the fast and convenient online application (completed in less than 5 min and disbursed in 72 hours)

2. Coffee Value Chain, cooperatives and small holder farmers

In Peru, coffee is mainly grown by small-scale farmers. To compete against the large global corporations, most of these smallholders choose to join cooperatives. On average, an Aprocassi coffee-farming family (580 members) owns two hectares of land and earns ~US$ 3,000 a year.

The effects of climate change and the related high price risks in the coffee sector make life very difficult for small-scale farmers in the southern hemisphere. The producing countries only receive a small percentage of the value generated while at the same time carrying the lion’s share of the social and ecological burden of the supply chain (Source: BASIC report, 2018).

Investments in agriculture are high-risk, but this is an area where Oikocredit can really have an impact. The current loan covers up to 70% of the costs of the annual harvest. Coffee production in Latin America has been declining significantly over the past few years, in Peru alone by up to 20% (http://www.oikocredit.ca/k/n3048/news/view/308228/26886/how-do-coffee-cooperatives-support-smallholder-coffee-farmers-in-peru.html) . This is primarily due to climate-induced fungal diseases, such as coffee leaf rust. To help its partners cope with such problems, Oikocredit provides special terms for their loans, such as variable repayments in the event of failed harvests and crop losses. In addition, technical assistance is offered to help smallholder farmers adapt to changes in climatic conditions and respond to fluctuations in coffee prices.

Furthermore, Oikocredit is focused on the entire coffee value chain. In May last year, Oikocredit made a US$ 4.7 million investment in Caravela Coffee, a Latin American socially- responsible specialty coffee trader. It sources high-quality coffee from eight Latin American countries and sells it to specialty coffee roasters in 27 countries. 

3. Off-grid energy solutions

Oikocredit invests in small and medium-sized renewable energy projects. We choose the projects for their social impact and the benefit Oikocredit can bring. For example, Cygni Energy designs manufactures and sells solar DC power backup solutions and has been an Oikocredit partner since 2017 with a loan of 155 million Indian rupees.  More than 300 million Indians have no access to electricity and a large majority of them live in rural areas (https://www.bbc.com/news/world-asia-india-41397022). These households depend on kerosene for lighting and diesel generators for electricity. Decentralized renewable energy sources and solar in particular are a valid alternative in these areas.

Another similar example from rural Uganda is Solar Now. Its customers include families and small businesses in remote areas, with a focus on customers with income-generating activities. Customers buy the systems on credit, which they can repay within a period of up to two years. Solar Now is an Oikocredit partner since 2017 with a loan of US $3.5 million.

For other partner examples across different regions, check out partner map at http://www.oikocredit.ca/what-we-do/our-partners/map 

Oikocredit in Canada: Being a catalyst

Oikocredit in Canada truly wants to be a ‘catalyst’ for change through our national not-for-profit organization Oikocredit Canada. With the trust, expertise and experience Oikocredit has built in developmental financing, we are looking to partner with other stakeholders (government, for profit, foundations, charitable organizations and others) to solve social challenges in the developing world through financing and capacity building initiatives.

Through our founding membership in forums like CAFIID, we are making sure that impact investing industry has a strong voice in Canada. We are accelerating the momentum in this space to make a tangible impact in achieving UN SDGs by sharing best practices on impact measurement and reporting. We are engaged with multiple stakeholders including Ontario Council of International Cooperation, BC Council of International Cooperation, Canadian Council of International Cooperation and Global Affairs Canada to advance the dialogue around innovative and blended financing approaches.

Canadians have a strong intent towards international development assistance. This was further highlighted in a recent study by Canadian Council for International Cooperation. Substantial commitments have been made through Global Affairs Canada (GAC) International Assistance Innovation Program and Canada creating setting up FINDEV. It is time for all of us to come together and leverage our collective passion to create a lasting positive social and environmental impact. We need to create innovative product offerings and blended approaches across investor profiles (retail, institutional and accredited) that will help communities and people live a dignified life. Let’s join hands and collaborate for a better future for all of us.

We welcome you to reach out and share ideas to collaborate on new impact investing products, innovative ways to raise and deploy financing (included blended finance) in the global south and work together in achieving UN Sustainable Development Goals.