Putting lending on hold due to the Covid-19 pandemic, social impact investor reassures its partners that it is willing and able to support them in swimming through the turbulent waves
By George Gichuki
Oikocredit is a global social impact investor. For the last forty six years, the leading organization has been working in the financial inclusion space. It has a presence in over seventy countries around the world. Kenya is the
regional office or hub for East and Central Africa. Oikocredit provides debt and equity solutions as well as capacity building to various players in Kenya’s microfinance sector.
According to Ms. Carol Mulwa, investment manager, Oikocredit East and Southern Africa, the Kenyan and regional business has been adversely affected by the Covid-19 pandemic. “Travel restrictions and social distancing have reduced direct contact with our partners which has meant that we are not able to conduct due diligence or monitoring,” says Ms. Mulwa. “We have therefore adopted desk monitoring and online due diligence which means that we can only do new business with existing partners,” she adds.
Owing to this challenging situation, Oikocredit has stopped undertaking all new business development until when the situation stabilizes. The organization has also developed tools that enable it to monitor its partners’ liquidity and cash flow so that it can in turn evaluate its own risks on an ongoing basis.
Moreover, Oikocredit has strengthened its own processes and procedures on risk management. Significantly, together with several social impact investors working in Africa, the organization has made a public statement and signed a memorandum of understanding on a joint commitment to support all their partners during this tough time.
Due to a slowdown in business that has been caused by the lethal pandemic, Oikocredit is responding with repayment
holidays and covenant waivers for the partners who are in distress. By the same token, the organization has organized a
series of capacity building interventions to support its partners in building resilience. “ Interventions include having partners share experiences on what they are doing to support their clients, developing and sharing risk management tools to help them monitor their cash flow and liquidity as well as online training,” says Ms. Mulwa.
Ms. Mulwa is emphatic that if players in the microfinance sector are honest about their cash flow and liquidity positions, then they shall be able to make the right decisions during this challenging period. “They should be realistic about the impact of the Covid-19 pandemic as opposed to burying their heads in the sand,” she cautions. In the same vein, she advises these players to evaluate the need for repayment holidays and covenant waivers and request for that reprieve from their financiers.
Microfinance institutions are not entirely driven by the profit motive. Their mission is to support the economically active albeit low income earners to overcome their plight by offering them innovative, flexible and affordable products and services. “They should not drift from this mission even at this difficult period,” says Ms. Mulwa adding that the way they treat their customers will determine how quickly they shall be able to bounce back once the situation normalizes.
Despite the uncertainties caused at the marketplace by the deadly pandemic, microfinance finance institutions have a good opportunity to gain the loyalty of their customers by offering them an exemplary experience. Moreover according to her, these lenders should also provide repayment holidays for their customers when the need arises.
It is also important for microfinance institutions to devise ways of maintaining contact with their customers at all times.
“The fact that you cannot meet your customers physically should not stop you from visiting their business or using technology to stay in touch with them – for instant videos and broadcast short message service ( sms),” Ms. Mulwa advises these lenders.
Further she says that microfinance institutions should support their staff members during this challenging time since
most of them are worried about their job security and financial stability. In the same breath, they should be open with their investors and should there be a need for them to inject more capital in the business, then the investors should be informed accordingly.
Ms. Mulwa also emphasizes that after doing proper evaluation, microfinance institutions should continue to lend where
it is possible; for instance essential services sectors like agriculture. “It is also advisable for them to adopt technology as a way of doing business,” she says adding that these lenders should work with development partners who can provide grants (partial or full) to support them and their customers as well during this challenging time.
Oikocredit has teamed up with other apex lenders in the country in addressing the challenges currently facing their clients due to the Covid-19 pandemic. “This move is a testament to what we have always believed,” says Ms. Mulwa. “Although we are competitors, we have always been acutely aware that there is enough space and business for all of us,” she adds. Further she says that they have unique value propositions and joint partners hence the need of taking the common approach. “If one lender is accelerating a loan while the other is providing a holiday, it can only lead to disaster,” she cautions.
In the new normal, it is important for all players in the microfinance sector to observe the World Health Organization (WHO) protocols and guidelines for checking the spread of coronavirus. In the meantime, they should embrace technology in doing business and to create efficiency according to Ms. Mulwa.
Despite the hostile operating environment, Ms. Mulwa affirms that Oikocredit is closely monitoring its partners, staying in touch with them and doing its best to strengthen its relations. “Our commitment to our partners and to financial inclusion is unwavering,” she says. “We intend to resume lending as soon as is practically possible,” she adds. At the moment, Oikocredit is paying very close attention to the safety of its staff members.