Improving income for farmers, artisans and workers
Increase in capital available to lend
Share Capital provides the key source of funds for our lending services, and at 30 September 2022, we reached a total of £52.3m. This increase of £1.6m has helped us continue to support farmers and artisans who follow the 10 Principles of Fair Trade.
The committed value of lending is higher than the value of Share Capital held. This is because not all customers borrow at the same time due to the different harvest periods across regions. To mitigate risk further, we have set a limit to ensure that the total committed value is never above 135% of our Share Capital. The committed value represents facilities where funds are ready to be drawn by the customer (short-term lending) and the remaining balance of Term Loans. This value increased from £61.2m in 2021 to £70.3m this year due to the difference in exchange rates, because if we compare the committed value in currency there has been only a slight variation.
The value of the committed facilities is based on the exchange rate on the 30th September 2022 and, due to the recent devaluation of Sterling against the US Dollar in the latter part of the year, there is a significant increase compared to the same time last year. The committed value of facilities lent in USD decreased from $18.5m in 2021 to $18.2m in 2022 while the Euro facilities decreased from €18.5m to €18.2m. The GBP facilites increased from £2m to £2.2m in 2022.
In addition, although the number of customers reduced during the year, several of the accounts closed had a small facility limit and those with larger balance increases were provided for as bad debts. As a result, the total committed value remained similar in currency terms. Despite the reduction in our customer count, there was an increase in the utilisation of our facilities, and we were able to achieve our income targets.
Access to fair and affordable finance
With over 30 years of working collaboratively with farmers and artisans, we have developed a deep understanding of the challenges faced by producer groups. We have fostered strong relationships, based on two-way communication and trust, which has enabled us to find the best possible financial solution while considering customers’ harvest time, cash flow limitations, etc. By carefully monitoring the market volatility and increasing our visits to customers, we have been able to continue working with organisations struggling to meet their repayments where, in some cases, we extended the lending terms. As a result, some producers were able to see an improvement in their 42 | P a g e business trading conditions and restart their repayments to us, and ultimately reduce their outstanding debt.
If we compare Shared Interest with other lenders (including local banks), the interest rate we offer in most regions is above average. The exception is East Africa, where Shared Interest is comparable (as seen in the graph below). This is due partly to the fact that, historically, we did not take security against our finance, which infers a greater lending risk. In recent years, we have started to take security in some cases and introduced annual fees, which has allowed us to charge a lower interest rate. In fact, 82.6% of our funds are lent in USD and 16.8% in EUR. Nevertheless, it is also important to note that, as per the latest CSAF report, only 24% of all the organisations who received funds, do so from multiple CSAF members. These are also generally larger sized clients with a lower perceived risk. In most cases however, Shared Interest is the sole lender working with the organisation.
“Although the interest rate is the highest in the market, the process to request for financing money is easy and the transfer are made quickly. We have been working with Shared Interest for two years without any issue and now our activities and operations have doubled.” Tekura (East Africa – Handcraft)
You can read the full Social Accounts document here.
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