Frequently Asked Questions

Investment possibilities depend on the legal and regulatory situation for your country. To find our more about investing in Oikocredit, click here.

Our role lies predominately in the re-building of communities and fostering development. That is where our expertise lies and where we are most useful. Oikocredit's expertise lies in financing organizations, cooperatives and small and medium sized businesses through loans, investments and credit lines.

When natural disasters strike and in emergency situations, we encourage our members to donate to well-reputed relief organizations who are equipped to provide and direct humanitarian aid to those who need it in emergency situations, but we do not co-ordinate these types of donations ourselves. Our value lies in contributing at the rebuilding and recovery stage - when media attention may have faded but there is still a lot of work to do.

This is the stage where vulnerable groups need new opportunities. Oikocredit will continue its mission of providing access to financial services to the poor, and daring to go - and stay - where others do not.

Today, the crisis concerns mainly conventional commercial banks offering complex - and often speculative - financial products. Microfinance institutions work completely differently from regular banks and, therefore, have not been directly affected by the crisis.

In microfinance, products are simple and risks for the borrowers are carefully analyzed. Microfinance institutions are close to their customers allowing them to carefully weigh loan applications and evaluate the capacity of microentrepreneurs to repay their loan. Moreover, the collateral is tailored to the capacity of entrepreneurs and communities. For instance, loans are often provided to groups of people, as opposed to individual loans.

Despite the growing influx of foreign capital, most of the money used in microfinance is raised locally. Another portion comes from multilateral donors, international finance institutions and partners, like Oikocredit. We are not currently affected by what is happening in the credit markets because we rely on private capital brought together by committed investors and we have a well performing portfolio of more than 560 microfinance institutions.

Since our first days, investments in Oikocredit were mainly the result of the intensive work of our volunteers. It is their contribution that has helped us limit our promotion budget. Although we did not resort to expensive media campaigns, we saw a yearly increase of member capital that was more than sufficient to finance loan applications.

Today, our volunteer network counts around 34 support associations, five national support offices and hundreds of volunteers around the globe. By advocating for Oikocredit, each in their own regions, we've been able to minimize operational costs for capital mobilization - and put a higher proportion of investors' money directly into projects on the ground.

Our name embodies our core value: belief in people.

In ancient Greek, oikos means house, community or world - the places where people live together. Credit obviously refers to our financial operations, but the word derives from credere, to believe.

The word oikos is the root of three concepts at very the heart of our organization:  ecumenism, economy and ecology.

Read more about our history.

We have a flexible interest rate on both our hard and our local currency loans, taking into consideration: market rate, project and country risks, development relevance and cost coverage.

Contrary to popular belief, our project partners don't come to us because our interest rates are lower than local banks. On average, our rates are about 95% of commercial rates.

The reason they come to us is they have a hard time getting loans from regular banks. They can't offer the full 100% security required. Also, we can offer a longer term (five-ten years) than those banks would normally offer. Banks in developing countries typically offer loans of six months or one year to minimize risk.

We do not charge extra fees or commissions. Our loan appraisal and disbursement procedures are transparent and relatively non-bureaucratic. Finally, our regional and country offices, which are staffed by local professionals rather than expatriates, contribute to the quality of our services through their capacity to understand the environment and realities of our clients.

Oikocredit pays a modest dividend to its shareholders. This varies up to 2%. The fact that we limit our dividend to this modest level enables us to charge reasonable interest rates on our loans - without extra fees and commissions - and to extend credit to partners with a higher-than-average risk profile.

Our investors agree that we should not charge excess costs to project partners and therefore accept a lower dividend.

In line with our mission, we will continue to stress the social return of investments in Oikocredit. Oikocredit distinguishes itself from socially responsible investment funds (SRIs) by supporting the full range of income-generating projects for and by disadvantaged people, including those that other financiers reject. This is Oikocredit's unique proposition, which will continue to be maintained in the years to come.

Since Oikocredit was first established, no investor has ever lost capital*. Since 1980, less than 4 per cent of funds disbursed have been written off, but we know the past does not necessarily indicate the future.

Our regional and international staff plays a crucial role in selecting projects that are socially relevant and have the capacity to become financially self-reliant. It simply does not make sense to finance projects that will not have the capacity to honor their debt based on income generated. If a project partner cannot repay, this is discouraging for them and they may end up in an even more difficult situation than where they started. Our core objective is to empower people through sustainable financing.

To ensure maximum sustainability, we balance our risks. Part of our funds are invested in a less risky, term investment portfolio. This balances our riskier project portfolio. Our term investment portfolio is composed of at least 90% investment-grade bonds and no more than 10% shares. These investments are screened according to their ethical standards by the internationally recognized, independent screening agency, Ethibel in Brussels. As a result, our term investment portfolio has received the Ethibel label (with the exception of those bonds placed in countries that have not yet been rated).

Read more about how you can participate.

* The past is no guarantee of future performance.

This is not an invitation to invest nor is it an offer of securities and/or of financial instruments.  That can be made only through a formal prospectus where applicable pursuant to local legislation and in compliance with applicable local legal requirements and is therefore only allowed in certain jurisdictions. For more information, please read the disclaimer. Investment possibilities depend on the legal and regulatory situation for your country. For more information on investing in your country of origin, click here. Participation in Oikocredit entails financial risks associated with: country risks, currency risks, project risks, legal risks, dependency on volunteers, market and interest rate risks, liquidity risks and credit risks. Please see page 5 and 6 of the Oikocredit prospectus 2009 (.pdf).

Currently, our operational costs are around 2% of total assets. The costs are kept low by the fact that most of our capital mobilization is taken care of by our international network of volunteers through our support associations. Another factor is our presence and proximity to our partners in the field and our salary policy.

Many members value the fact that our operational costs are kept low, so that the maximum possible funds are sent to the field. This allows us to support more than just successful, well-established microfinance institutions. We can support the newer and weaker ones, as well as other types of economic initiatives for the poor, like grassroots credit cooperatives or small and medium enterprises with a high social relevance.

Our background is ecumenical. It is our mission to encourage churches and church-related organizations to invest in social justice. However, our church-based roots are not reflected in our project selection criteria. Our mission is to allow people to invest in the sustainability of others. Investment criteria are never based on religious faith. We look exclusively at sustainability, community and social impact.

Learn more about our activities in the field.

We are different in various ways. First, we've been operating since 1975. As one of the pioneers in this field, we've gained a long-standing experience in this kind of financing. We don't just finance well-established and highly successful microfinance institutions (MFIs), but also riskier ones. These include NGO-based MFIs and credit and savings cooperatives, in both urban and (riskier) rural areas.

Also, Oikocredit works with a unique network of regional and country offices, staffed with local personnel who screen loan applications and remain in close contact with clients.

Unlike others, we provide loans in local currency. This is valuable for our project partners, who earn their income in local currency. A hard-currency obligation can be disadvantageous - or even disastrous - in the event of devaluation.

Finally, Oikocredit has a unique network of institutional and individual investors all over the world. These investors don't aim for the highest possible financial return, but focus equally on social return.

Learn more about our activities in microfinance.

We offer a social vision and history of partnership and sustainability in the field which generates substantial social returns for our investors. Those substantial social returns include the empowerment of the poor, the alleviation of poverty and the creation of a more just society. That is our motivation, and it goes to the core of our mission. We strive to offer transparency in evaluating this.

Visit our Social Performance Centre to find out more.

Oikocredit uses impact studies made by other organisations, organises exit interviews with clients, and since recently appoints independent agencies to execute impact assessment studies on a small number of projects in the portfolio and to evaluate the social and economic impact of the credit. Furthermore, we intensively discuss developments with other actors in this field.

Learn more about our activities in the field.

Experience proves that loans are a more appropriate instrument than grants to achieve economic productivity and self-reliance. If a project is financially viable, loans will stimulate sustainability. Also, in a loan relationship, both parties are business partners. We rely on each other with mutual respect.

Learn more about microfinance 

There will always be projects that are not able to partly or fully repay. This may be due to external reasons like economic crises, devaluation, political instability, changing market conditions or competition. It may also be due to internal reasons, such as bad management, departure of key staff members, or even fraud.

We try to solve these problems and further support the projects by means such as additional technical assistance or rescheduling, settlement and foreclosure and, in case of fraud, legal action. This last case happens very rarely. In such cases, there is not only money at stake, but also the credibility of Oikocredit. In all lending, it is vital that borrowers take the loan provider seriously.

Oikocredit concentrates its credit operations on a limited number of focus countries in order to be efficient. Our experience prior to 1999, when there was no such focus, has taught us that close contact and intensive relationships between project partners and regional offices is a key factor for success.

Learn more about our focus countries.

Since the start of Oikocredit's operations, share value has always been maintained. Oikocredit does not aim at profit maximization but, since 1989, a 2% return has been paid almost every year. During the Asian economic crisis of 1998 and 1999 a 1% dividend was paid. Of course, past performance is not an indication of the future - every investment involves risk.

Of course not. The success of our project partners in attaining sustainable development is related to their own commitment, skills, hard work and business plans. Financing a project is just part of the solution. Many projects need more than credit. By cooperating with development agencies, like ICCO and the Church of Sweden, and banks, like ING, we can offer technical assistance as well.

Learn more about our strategic partners.

• Specifically, the main concerns which arise in the media regarding microfinance are over-indebtedness, interest rates, a lack of transparency, reaching the poor and the creation of jobs. The media and the public want to know: do the lives of people taking out microloans really improve?
• For many years Oikocredit was almost alone in financing microfinance institutions. As other actors began to invest, many became distracted by obtaining a profitable return on their investments and were less concerned with social results. These organizations often prefer to collaborate with large, urban microfinance institutions with solid track records and low risk ratings.
• Oikocredit strives to deliver financial services to those who do not have access to regular banks. We prioritize investments in small, often rural based organizations with a proven social impact and as a result, more than 50% of our portfolio is in small to medium-sized microfinance institutions.

• It is not always the case that access to financial services has a positive impact on the lives of people and so we welcome well-researched analyses. Assessment and evaluation keep operations in check, and work to maintain the integrity of the sector.
• Repayment can become a burden for a client, whether it is because of high interest rates or multiple loans. That's not good for the client, nor is it good for the sustainability of the sector and its mission. We do not want MFIs and their clients to fall into this trap.

• A key factor often overlooked when judging interest rates is the local context. In general, interest rates in developing countries are much higher than in Europe or North America. The local commercial market is the first factor considered.
• Additional factors: cost of funds, administration, size of loan (it costs more to disburse several small loans than one large), risk, level of support end-client needs (financial education, group support, collections), access to technology, rural or urban location (transportation, time for loan officers). Sometimes high transaction costs translate to high interest rates. It's essential these rates are fair, and the reasoning behind them is transparent.
• While Oikocredit's focus is on poverty reduction, we are not a charity. As such, we acknowledge the need for an MFI's own stable financial results to ensure the sustainability of its operations. However, there is an essential difference between profit making and profit maximization.

Before any organization becomes an Oikocredit project partner it undergoes extensive analysis to ensure it is financially and socially in line with Oikocredit values. We carefully measure the enterprise against eight points of Oikocredit criteria.

These include the extent to which the enterprise:

1. benefits poor and disadvantaged people
2. widely distributed its benefits and does not result in the enrichment of only a few organizers or investors
3. contributes to social and economic advancement of the larger community in which is it located
4. gives special attention to the ecological impact and the protection of animals and plant species
5. favours a cooperative structure as much as possible so economically disadvantaged people can participate directly in the operation and management of the business.
6. gives preference to women in participation and as direct beneficiaries
7. is economically viable and able to become self-sustaining within a reasonable period of time, thus allowing Oikocredit's financial participation to be phased out
8. needs foreign investment which can be provided within terms that can secure the necessary government approvals and that are beneficial to the project partners.

• When selecting project partners, often MFIs, we ask them to provide us with the annual interest rate on their main financial product (or the product(s) which constitutes 30% of their portfolio). Using our network of partners and field staff, we compare the interest rates to the standard range of similar groups in the region. With this information, we can determine whether the interest rate is acceptable.
• In 2008, Oikocredit began to use the Social Performance Indicators tool: an audit instrument much like a financial audit. It assesses the social performance of an organization by evaluating their intentions and actions, and shows 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.

Yes. If Oikocredit determines an organization's interest rate to be too high, after all factors are taken into account, we will not approve the loan.

We consider several factors:

• market rates for comparable transactions (if any) by local banks and other lenders
• our own cost of capital
• borrower and country risks
• development relevance of the application submitted by the borrower
• our own operational cost in providing and monitoring the loan.

We use an internal interest rate calculation model to determine what the interest rate should be. In general, within a certain country, the model works out that the interest rate charged to a borrower varies with the size of the loan (bigger loans have proportionately lower operational costs), the sector (loans to MFIs are more standard than SME loans which means that we have less operational costs in analyzing and monitoring MFIs) and the borrower risk. No matter the outcome of the model, the interest rate charged will be in line with a country's market rates.

In general, bigger loans to large MFIs with a track record (lower risk borrowers) especially in countries with a low country risk, would receive a rate of approximately the cost of capital plus 2 to 4% (EUR). Loans to smaller MFIs, with a brief track record and a high country risk would have interest rates of the cost of capital plus 5 to 7% (EUR). These rates can vary depending on the development of cost of capital (base rates) and other factors. Loans made in domestic currency often have a higher interest rate than those in dollars or euros, factoring in a higher chance of devaluation (partially influenced by higher inflation). 

Oikocredit has actively facilitated many industry-wide initiatives which promote transparency and ensure the microfinance industry maintains its social mission. Oikocredit offers financial and technical support to those MFIs that want to persue social assessment tool.

These include:

• Client Protection Principles: Oikocredit was one of the first microfinance investors to sign on to the Client Protection Principles. The principles are designed to create consistent practices and policies for the fair financing industry as a whole. Read more about the Client Protection Principles.
• Social Scorecard: Oikocredit is implementing a screening process for MFIs that includes an analysis of how they serve their clients (social scorecard). The process is based on ESG (Environment, Social and Governance) principles.
• MFTransparency: In October 2008, Oikocredit signed the MFTransparency agreement which signifies our commitment to making the communications between Oikocredit and our consumers (MFIs) more transparent. MFTransparency exposes the prices of financial products per country.
• Social audit: It is important to evaluate our own actions as a microfinance investor. Oikocredit has looked beyond the performance of the microfinance institutions. Last year, Oikocredit was the first private financier to be audited on its own social performance.
• Progress out of Poverty Index^TM: To assist MFIs to assess the poverty level of its clients, Oikocredit very actively supports the implementation of the Progress out of Poverty Index as is developed by Grameen Foundation.
• Imp-Act consortium: Oikocredit has signed on as the newest member of the Imp-Act consortium. The move provides an opportunity to learn, network and contribute to social performance management in the microfinance industry. Read more about the Imp-Act consortium.