Organization (Credit Union) Description: Mennonite Savings and Credit Union (MSCU) provides banking services to over 20,450 members in communities across southern Ontario. MSCU has more than $1 billion including off-book assets under administration, eight full-service branches, and five sub-locations.
Organization (Partner) Description: Oikocredit Canada is the Canadian arm of Oikocredit International, a global cooperative and social investor providing loans and investments to partner organizations in low-income countries. Oikocredit International invests in microfinance, agriculture, cooperatives, fair trade organizations, and renewable energy. In September 2015, the organization had €808 million (CAD $1.25 billion) invested in about 800 partners across more than 60 countries. Oikocredit has been operating since 1975 and is considered one of the largest private investors in microfinance in the world. Oikocredit Canada is also supported by networks of volunteers across Canada. In 2015 in Ontario, Oikocredit volunteers were organized by the Oikocredit Canada Support Association. The mandate of the support association is to educate Canadians on the work of Oikocredit, and value of development finance.
Structure: MSCU member retail investors can invest funds in a GIC. MSCU purchases shares in Oikocredit International using its own funds that matches the principal amount that is deposited by investors. Oikocredit International uses the funds to make loans and investments in its partners for sustainable development and MSCU receives an annual dividend return on the shares. Members receive a guaranteed fixed interest rate of return on their investment.
Target Demographic: The product is available to any individual or institutional investor in Ontario who is a member of MSCU.
Impact Focus: Oikocredit International promotes sustainable development in developing countries by providing loans, capital, and technical support to microfinance institutions, cooperatives, fair trade organizations, small to medium-sized enterprises, and renewable energy projects. These organizations support entrepreneurs, create jobs, build communities, and provide access to commercial markets for farmers.
When the national director of Oikocredit Canada, Eugene Ellmen, was hired in 2013, one of his primary mandates was to develop a retail investment product. Among the ideas considered was a savings product linked to investments in Oikocredit. Oikocredit had developed a similar product with GLS Bank in Germany.
“While Oikocredit is an internationally recognized institution with a sizeable asset base, we are not well known in Canada. So it takes time to build our brand awareness among the credit union sector, and to develop comfort with the idea of partnering for product development.”
Eugene Ellmen, Director, Oikocredit Canada
At an early stage, Mennonite Savings and Credit Union (MSCU) showed interest in the concept and felt that it fit well with its traditional product offerings in socially responsible investment. Oikocredit approached the Director of Investments at MSCU to explore interest. Subsequent discussions included the Vice-President of Marketing and the Stewardship in Action Advisor (corporate social responsibility/community engagement) who developed a short briefing document that responded to key questions from MSCU’s senior management on a product partnership. This provided the gateway to move forward in the product development process. MSCU staff suggested that the timing for this product was opportune. As the CEO of MSCU, Brent Zorgdrager stated, “We knew anecdotally from talking to our financial advisors that there would be appetite for this type of product from our customers. It provides another option on the spectrum of values-based investment for a customer base that is socially-minded.”
In order for the business case to be formally accepted, MSCU’s Chief Executive Officer (CEO) and Board of Directors had to approve the general concept for the GIC product. Approval was gained through a three-step process:
1. CEO Assessment
MSCU’s CEO evaluated the concept for the retail product across three criteria:
- Strength of the partner organization: track record, company management, financial performance, and impact performance.
- Revenue potential: spread, dividend stream, and risk of investment write down.
- Opportunity cost for credit union: the opportunity cost of funds/deposits diverted from regular loan transactions and the opportunity cost of investment diverted from other potential investments.
2. Approval from Deposit Insurer
When satisfied with this assessment, the CEO had to gain approval from DICO. The key concept that was communicated to DICO was that it was the credit union itself that was taking on the risk and not the retail investors. The retail investors place funds in a term deposit that was not directly invested into Oikocredit International. MSCU supplies matching capital that would be invested into Oikocredit International directly. The decoupling of risk between the investor and the investment in Oikocredit International allowed the regulators to confirm the product qualified for deposit insurance.
3. Approval from the Board of Directors
Due to the nature of the investment (unsecured risk capital), board approval was necessary. Once deposit insurance was approved, a request for approval was formally made during a regular board of directors meeting. The CEO and the Director of Investment Services presented the concept to the board, emphasizing the track record and history of Oikocredit International, the limitations of the risk involved, and the strong mission alignment. MSCU board members were already familiar with the concept of impact investing, and only required education on the specific design of the product. Also, the CEO and Director of Investment Services were able to leverage the knowledge of a board member who had previously served on the board of the Oikocredit Canada Central Support Association as an informed supporter. At the board meeting, approval was granted and a three-month timeline was outlined to launch. This relatively quick launch time was achievable because the product was an initiative led by the CEO of MSCU, Brent Zorgdrager: “Internally, it was an easy sell because the product was aligned with our values. Once we received the buy-in from senior leadership, it allowed our internal teams to come together pretty quickly to begin the planning towards launching the product.”
“If you don’t have the passion for what it is you’re trying to accomplish, you’re probably not going to be successful. There are a number of steps and potential challenges to work through—processes, relationships, due diligence—with significant effort involved. Being passionate about impact will serve you well as you work through the details.”
Brent Zorgdrager, CEO MSCU
The Director of Investment Services, who acted as the project manager, engaged several internal teams—legal, privacy, finance, member services, and marketing/community engagement—together with Oikocredit Canada in executing the activities. Although the process below is presented sequentially, some activities were conducted concurrently.
- Obtaining a Legal Opinion: The legal team was engaged early in the development process to determine if there was alignment of the Oikocredit Global Impact GIC with the existing regulatory system. Legal expertise also provided advice on RRSP and TFSA eligibility.
- Tackling Privacy Issues: As part of their regular partnership arrangement, Oikocredit International mandated the sharing of investor information with their organization. As this was not regular practice for the credit union, the privacy team had to be engaged in order to construct an alternative data sharing agreement that still worked for Oikocredit International.
- Determining Internal Processes: Given that the product was structured as a GIC, the finance team largely used existing processes to place the product within their internal operational systems. A process was developed to manage the investment in Oikocredit International on a quarterly basis.
- Onboarding Existing Oikocredit Investors: Oikocredit Canada Central (OCC) Support Association had existing Canadian investors that, due to securities regulations, could not remain invested with OCC. As most Oikocredit Canada investors did not live within MSCU’s local area, MSCU Members Services created a process to enroll OCC members in the credit union. This process was complicated by coordinating activities across members, using multiple legal documents, all while protecting privacy of members.
- Deciding Term Length and Pricing: In consultation with MSCU’s CFO, the CEO and Director of Investment Services decided on an initial offering of 12 months with a 1.3% rate of return. This offered members a low barrier to entry, encouraging members to try it. After a year, the term length was changed to a 3-year term with a 1.6% rate of return to maintain investments over a longer period and reduce administration costs.
- Developing a Marketing and Communication Strategy: As the primary target audience was existing credit union members and the rest of the elements of the product mirrored a traditional GIC, the marketing team decided to emphasize the international impact. Once the key message was developed, MSCU’s team, including an in-house graphic designer, worked with Oikocredit teams to develop consistent marketing materials, which included brochures, one-page summary documents, and online content.
- Educating Staff: Using this marketing material, the investment team developed a strategy to educate all staff with particular attention to financial advisors and financial planners. Oikocredit Canada’s national director was brought in to educate investment team staff (in branch and head office) on the mechanics and impact of the product. Information on the Oikocredit Global Impact GIC was also distributed on MSCU’s intranet and staff bulletin boards within the office.
The product was ready for launch in February of 2015. Oikocredit Canada and MSCU jointly issued a press release, and members of both organizations promoted the product at industry conferences and events. Brent Zorgdrager, CEO of MSCU, attributes success of the product launch to “MSCU’s effectiveness at translating how this product was not so different from other GIC products we offer, but clearly different in terms of the product design, and how we explained it to members in terms of its risk and impact factors.” Oikocredit also promoted the release with its press contacts, resulting in positive media coverage in Now Magazine in Toronto. Advertising space was also purchased in Your Guide to Responsible Investing, a regular supplemental magazine in Investment Executive and the Toronto edition of the Globe and Mail.
Step 1: Any individual interested in the Oikocredit Global Impact GIC who is a member of MSCU can make a minimum $500 investment into the financial product.
Step 2: Money from deposit investors is pooled internally within MSCU. On a quarterly basis, MSCU purchases shares in Oikocredit International equal to the amount of funds invested by GIC holders. MSCU’s purchase in Oikocredit is limited to $10 million.
Step 3: Oikocredit International pools funding from investors across the world and invests money through either debt or equity investments in partner organizations. Investments are made and repaid on customizable terms.
Step 4: As Oikocredit investments are paid back, Oikocredit International provides MSCU with an appropriate return. Oikocredit produces an annual Social Performance Report for its investors, which includes detailed information on its social and environmental impacts. Eugene Ellmen, Director of Oikocredit Canada explains, “as a 40-year institution with an international track record, there is a strong commitment to social performance measurement. This can give credit unions confidence around the mission alignment, as well as reporting on the social impact to customers and for the credit union.”
Step 5: MSCU provides GIC investors with interest and principal at the end of the term unless deposit investors choose to renew the investment.
Key Success Factors
Responsiveness: The responsiveness of the MSCU team was key to rolling out the Oikocredit Global Impact GIC in a timely manner. All departments involved in the product development process were able to provide the project manager with quick turnaround times on inquiries and requests that may have otherwise been bottlenecks.
Leadership: The role of leadership was key to bringing the product to market quickly. The CEO’s involvement in the product development from an early stage signaled the importance of this work to MSCU staff.
Business as Usual: The MSCU team made a deliberate effort to ensure that the product development and deployment of the Oikocredit Global Impact GIC was consistent with regular retail GIC products. This was also important for the internal product education process, as financial advisors did not need to learn new processes to sell and to administer the product. As Ruth Konrad, MSCU Kitchener Branch Manager explains, “We have created products that are accessible to our members, and this is another example. It is a GIC that is available to everyone, relatively easy to get into, and members can feel great about its impact.”
Advisor Education: Both the MSCU Director of Investment Services and Oikocredit Canada National Director were deeply involved in the advisor education process. An in-person session for all financial advisors was held at MSCU headquarters, and Oikocredit Canada responded to inquiries from advisors as needed. The depth of engagement contributed to the successful launch and uptake of the Oikocredit Global Impact GIC.