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Oikocredit: Socially Responsible Investments

The experience of Oikocredit shows how financial and social returns of investments do not need to be exclusive: Once a pioneer in the field of development financing, Oikocredit is today recognized as one of the largest financiers of microfinance world wide and one of the few ethical investment funds, privately financed by around 600 institutions and 30,000 individual investors from all over the world. Oikocredit believes that providing poor people with credit can help them building themselves a better life. As a socially responsible investment opportunity, Oikocredit therefore aims to promote global justice and sustainable development by converting investments into credit. Investors choose Oikocredit for its high social return, while accepting a modest financial return: The 32nd Annual General Meeting of Oikocredit in Hyderabad, India, in early June decided for the 15th time in a row to pay a dividend of 2% to its members.

Oikocredit is thus a unique co-operative financial institution, looking back at 30 years of experience in offering loans or investment capital to microfinance institutions, cooperatives, and small and medium sized enterprises in the developing world. What makes Oikocredit unique is the fact that people get access to credit who normally are excluded from financial services because they cannot offer the collaterals regular banks ask for or the interest rates are too high. It is the low dividend that enables Oikocredit to provide credit at reasonable interest rates and to extend credit to projects with higher risk profiles. Even though Oikocredit was created as a profitable organization, it chooses not to maximize its profits for the benefit of the shareholders, but for project partners such as microfinance institutions and cooperatives of farmers. With the initiative ‘Fair finance – Fair trade’ Oikocredit goes beyond microfinance and supports fair trade organizations and producers engaged in fair trade. Oikocredit supports project partners on the grass-root-level, including non-governmental organizations, small and medium sized enterprises, and cooperatives, but it is also microfinance institutions that turn to Oikocredit to find an alternative private investor in order to meet the needs of their thousands of individual clients.

Oikocredit’s approach reaches also marginalized groups like the rural women supported by organizations such as Confianza, a microfinance organisation established in 1997 in Peru, with the mission of primarily focusing on women of the highlands with little access to financial services. Many of these women are heads of households whose families’ livelihood depends on their small agribusiness. The organization started its operations with a portfolio of 800 micro-loans for a total of 389,000 US dollars. After six years their portfolio had increased to around 11,500 clients in seven agencies, totalling some 8,700,000 US dollars and a repayment rate of 96%. The organization now has set up urban micro-lending programmes open to both female and male borrowers, while rural women continue to be the main focus of Confianza.

The key figures of 2007 show the success of Oikocredit’s approach: EUR 135 million disbursed to new projects and a total outstanding capital of EUR 277 million. In 2007 Oikocredit’s net inflow experienced an increase of 22% and a total member capital of EUR 319 million, while the demand for micro-credits is still outpacing the supply. Oikocredit therefore needs more funds, not only in order to meet the increased demand, but also for the development of tools for measuring and monitoring of the sector’s social performance and the social vision and impact of its partners.

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