Yesterday a controversial TV program on Muhammad Yunus and his company; Grameen was broadcasted on Norwegian Television… watch the one hour program on NRK1 here.
This post is not a direct comment on the aspects of the program or on Yunus’ dispositions, but rather a reflection on how MYC4 are dedicated to make a difference for our Borrowers.
Let’s face it: 80% of the African population is unbanked and to grow a business, capital is needed!
Statistics argue that wealth of nations is measured by the number of thriving Small to Medium Enterprises (SMEs) and not by giant corporations. In Africa, an adequate financial infrastructure serving the SME sector (1-100 employees) is lacking, often referred to as the “Missing Middle”. This is the part of the market MYC4 focuses on as illustrated in the picture above.
To date, MYC4’s average loan is EUR 2,000 and a repayment period of 12 months – an average Microfinance loan on a global scale is a couple of hundred Euros with a shorter repayment period.
Consequently, MYC4 is not offering loans to the poorest of the population. The long-term focus is to support African businesses of any kind and any size with financial services that fit their particular needs, but this will only be done when MYC4 finds suitable strategies to execute in this part of the market.
So, MYC4 has set out to fund entrepreneurs that have a proven business but lack access to capital to grow. In this connection, the single most important question to get verified is: Does your business have the ability to repay?
Whether you live in Denmark or Kenya, you should NOT borrow money if you do not have a plan for how you are going to grow your business with the injected capital in order to honor the agreed repayment plan. And to strengthen this part; MYC4 constantly invest heavily in finding and training Partners in becoming particularly good at vetting the existing businesses in order to secure that they have a plan for obtaining the loan and how they are going to repay the loan.
So far, this post has been focusing on the financial aspect of lending money, but how do we measure that we make a difference ‘on top of this’: MYC4 is based on the firm outset that business is the key to trigger unrealized potential in Africa, to speed up economic growth and social development. This approach has proven to have a great impact through centuries: By giving access to capital, African businesses will be able to develop their businesses, create growth and increase their income. They will be able to send their kids to school and to the doctor; they will be able to employ more people, who will send their kids to school and so on. In other words, prosperity will spread in ever widening circles.
Our ’Impact Score’ (calculation and assumptions of Impact Score can be found below) is based on numbers being collected during vetting of MYC4 Borrowers and takes into account the number of people, which are in the direct surroundings of the Borrower, employees and families. As the graph shows, MYC4 has to date had a social impact on +100,000 (accumulated), which makes us proud – and when you look ahead the numbers grow significantly (+600,000 in 2013), primarily because we are moving further up in the Missing Middle.
Calculation and assumptions of Impact Score:
|Average number of employees||3.5|
|Average number of dependants||3.2|
|Average number of people impacted per loan||7.7|
7.7 people per loan is too conservative a number as each of the employees, seen from a statistically point of view, also have dependants who are affected by the income their relative generates. It is assumed that the number of dependants is also 3.2 for each of the employees hence the Impact Score will rise by 11.2 people (number of employees times number of dependants) to 18.9, meaning that MYC4 loans, by yearend 2010, has had an impact on more than 100,000 people in Africa since launch in 2007.
The collection of data on employees and dependants was initiated in 2009, but as years 2007 and 2008 look similar to 2009; the Impact Score is set to the same score as in 2009, being 16.2
Going forward, the strategy of MYC4 is focusing on disbursing loans to SMEs who tend to have more employees hired than what MYC4 has been funding so far. The average number of employees will steadily go up and in order to illustrate what impact MYC4 will have up till 2013, the difference in Impact Score between 2009 and 2010 – being +2.7 – will be used to project the annual impact. The illustration below shows how many people MYC4 have impacted (accumulated) by providing financial services to the MYC4 Borrowers.