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INTERVIEW: Growing in challenging times

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31-05-2010

An interview with Oikocredit managing director Tor G. Gull

We are hearing more about microfinance in the media. Not only good things but some critical notes about overindebtedness and high interest rates. What is Oikocredit's stance on these issues?

We're pleased the issues are up for discussion in a public forum; that is the only way the industry will improve. The microfinance sector is relatively young and has grown rapidly. The industry needs to be kept in check and constructive critique helps with that.

It's very clear that credit has been a stepping stone out of poverty for many people- but it can only work as long as repayment is possible. If repayment becomes an insurmountable burden for a client, whether it is because of high interest rates or multiple loans, a client becomes over-indebted. That's disastrous for the individual and sustainability of the sector, and harmful to the social mission of it aswell. We do not want MFIs and their clients to fall into this trap.

 

How can Oikocredit be sure its partners are delivering on their social mission?

Evaluation and monitoring are essential to the financial and social success of our projects. We promote tools among our project partners that can increase transparency about interest rates, and monitoring of clients to prevent over-indebtedness. In 2008, we began to use the Social Performance Indicator (SPI) tool an audit instrument that works like a financial audit. It assesses the social performance of an organization by evaluating its intentions and actions. The SPI results show whether a particular project partner is reaching the people it intends to reach and whether its procedures, products and services are in line with its mission. Today, many of our MFIs have used this tool to evaluate the extent to which they are reaching their goals. This year, Oikocredit plans to dedicate even more resources - including training programmes - which promote social performance management among our partners.

 

What does Oikocredit do to increase the transparency of the industry?

Last year, Oikocredit's internal structure changed to create a new department, dedicated to social performance, ensuring it gets the attention it deserves at all levels of the organization. This department also initiates and promotes social performance in the sector through collaborations with other microfinance investors. Oikocredit has actively facilitated many industry-wide initiatives which promote transparency and ensure the microfinance industry maintains its social mission. We were among the first to endorse the MFTransparency initiative in 2008, which shows our commitment to making the communications between Oikocredit and our clients (MFIs) more transparent. Using this tool will help ensure costs of financial services to the poor are clear and fair to the clients of the organizations we work with. We also signed on to the Client Protection Principles, which were designed to create consistent practices and policies for the microfinance industry. With these tools, we can better monitor pricing, integrity and our ultimate goal of poverty alleviation in microfinance.

Can Oikocredit investors be assured their money is reaching the right people?

Our investors want to know their money isn't burying the poor in debt, or going to organizations that charge exorbitant interest rates. Oikocredit is committed to delivering that information to our investors. Social Performance issues are at the top of our agenda, and we aim to proactively inform investors on the positives of our industry, but also the challenges we face.

 

What are the plans for the future?

We are spending more resources in Africa and are planning to open more offices on that continent. Socially, we are implementing a screening process for potential partners, which includes an analysis of how they serve their clients. The process is based on the ESG principles, which means consideration of environment, social and governance issues. We will also continue the roll-out of our client evaluation tools among our partners, and keeping a close eye on trends - both positive and negative - that confront our industry.

 

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