Ethical bank targets FSC business in developing countries

More recently, the bank started to offer financing of similar initiatives in developing countries. The latest development is a new loan option that is interesting for companies wanting to develop FSC certified business opportunities.

Loans to develop FSC business

Founded last year, Merkur Development Loans Ltd. extends loans to small and medium sized businesses and cooperatives in developing countries. 

Except for loans for the advancement of renewable energy, eligible projects must involve at least one of five certification schemes for responsible forestry, organic agriculture, or fair trade. 

The bank follows IFOAM's criteria for credible certification schemes, which has FSC listed as the only acceptable forestry scheme. 

Credit Officer Kirsten Arup says: "We are focusing mainly on positive investment criteria. If banking is to make a real difference, it isn't very efficient to just exclude worst-case investments for example in warfare or highly polluting industries. It is much more interesting if the money actively contributes to improving the state of the world. We see FSC and the other certification schemes as drivers of a socially equitable and environmentally sound business development that ultimately helps to end poverty in the Third World". 

She adds: "We're glad to be able to offer these loans. Medium-sized enterprises do not benefit from micro-credit schemes. On the other hand, they are too small to get loans on attractive conditions, since they lack the negotiating muscles of the larger corporations. Medium-sized enterprises in developing countries typically have to pay interest rates of between 25 and 40% on very short-term loans, if they need investment to expand their business. With our new entity, we are able to offer loans on better terms to companies that advance the most socially and environmentally progressive solutions".

Terms and criteria

Merkur Development Loans Ltd. is established in partnership with the Danish Industrialisation Fund for Developing countries (IFU). Any company based in one of the countries on the IFU list may apply for a loan. However, it is seen as an asset if the company is already exporting to developed countries and has business partners there. 

"Of course we always check the economic viability of the project and the likelihood that the loan will be duly reimbursed by the company", says Arup. "Ongoing export to overseas business partners is a clear signal that the company is well-established. It is also a good sign if the company is already certified to a credible standard approved by IFOAM. We know that to become certified, the company needs a certain level of organization", Arup says. "However, certification is not a criterion for obtaining a loan. On the contrary, if the company has already started on certification procedures, we may offer to finance the costs incurred”. 

The loans are expected to average 40-50,000 EUR, with a maximum individual grant size of 200,000 EUR for medium-size companies. The loans can be used for purchasing new equipment, constructing new facilities, etc. The repayment time is typically 3-5 years - long-term conditions compared to the time normally allowed for reimbursement of loans in developing countries.

Export credits for FSC-certified businesses

Another scheme that has been operated by Merkur Bank for several years is Sustainable Trade Credits, which is based on export contracts. These credits serve to help Third World companies that need some initial financing to be able to accommodate major orders from abroad. The export credits are granted based on the same certifiaton schemes that form the basis of the development loans.

One example is Industrias Marfer Ltd., a publicly listed Mozambican company which has received a Sustainable Trade Credit for exporting FSC certified wood to Dalhoff, Larsen & Hornemann (DLH) in Denmark. The company owns a sawmill and has a fifty-year concession covering 50,000 hectares of forest.

Reliable returns despite financial crisis

Merkur Bank has grown tremendously since its establishment back in 1982. "We've grown at a constant rate of 15-20% per year", Arup says. "It's been very interesting to note that while many financial institutes have suffered greatly during the financial crisis, ethical banks have fared very well across all of Europe. We have actually experienced a surge of interest in sustainable banking during the global credit crunch. Also, we haven't experienced the same losses on our portfolio".

Arup ascribes this surprising success of ethical banks to their careful scrutiny of investment objects, including evaluation of the long-term social and ecological risks.

Backup from the customers

Arup points out that the establishment of Merkur Development Loans Ltd has only been made possible based on the willingness of the bank’s customers to take a risk: "Generally, investments in business loans to companies in developing countries are seen as risky. But we managed to get the scheme up and running, with an initial portfolio of over 2 million EUR. Some of our major clients have put in large sums, up to 135,000 EUR. These large investments are naturally crucial. But we're equally proud to see that a lot of average-income customers have chosen to spend some of their savings to invest in sustainable business development in poor countries".

NEPCon is proud of this development, too. The Danish branch of NEPCon has been using Merkur Bank for financial services right since our establishment in 1994.