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While investors generally lost money on loans given out in 2007-9, investments made since mid 2009 through our current providers have given investors a small positive return on the average so far. Investing in Africa is still risky though and the results you get on your investments will vary from loan to loan.
Last time we published an overview of investor returns, we received a lot of feedback. One of the requests was to show the portfolio performance quarter by quarter rather than all rolled up into one number. Another request was to split out the effects of defaults, interest and currency so they could be seen separately.
Lets start by looking at how good our partners were and collecting the money lent out – ignoring the effects of currency and interest for the time being.
This graph shows the status on January 19th of all loans disbursed since the start of MYC4. It includes all partners, both those that are currently active and those that have been suspended. It shows what has happened to the money disbursed in each quarter – whether it has already been paid back (blue), still being paid back and on time (green), still being paid back but more than 30 days late (yellow), or defaulted (red).
So for example, if you look at what happened with investments made a year ago, in first quarter 2010, the graph shows that 350,000 EUR were disbursed in that quarter. Of these, 250,000 have been repaid, 73,000 are still to be repaid but are on-schedule, 22,000 are late with their payments and 5,000 have defaulted.
While approximately 40% of the funds disbursed before Q3 2009 defaulted, there appears to be an improving trend for loans disbursed from Q4 2009. Of the funds disbursed in the first half of 2010 less than 1% have defaulted so far and 92% of the portfolio for this period is either already repaid (64%) or repaying on schedule (28%) while 7% is late. Many of these loans are covered by risk sharing agreements which should reduce the impact on investors in case of default. Loans disbursed in the second half of 2010 are still too young to judge accurately, but 95% of the funds disbursed during this period are either repaid or repaying on time.
We’ve done a lot to improve things: non-performing partners have been suspended, partner fees have been changed to encourage repayment, we’ve strengthened our team in Africa and do much more thorough spot checks of partners. We’ve also implemented risk sharing agreements so partners cover a portion of the losses themselves.
The next graph also shows the same data as the previous chart, but only for currently active partners (Growth Africa, Micro Africa, Fusion, Tujijenge, Gatsby, PRC). Since portfolio performance is largely determined by partner quality, this chart may give a better basis for projecting future performance than the previous chart. Note that since no partners were suspended in 2010, the 2010 numbers on this chart are identical to the previous chart.
The defaults within this portfolio are primarily due two Partners – Growth Africa and Gatsby who had some early problems, but are doing better now. Fusion has defaulted one loan from Q4 2009, but this has since been covered by their 95% risk sharing agreement. Micro Africa, Tujijenge and PRC have not had any defaults yet.
Seen year-by-year there appears to be a small improvement from loans disbursed in 2008 (15% default, 84% repaid) to loans disbursed in 2009 (9% default, 4% late, 3% on-time, 85% repaid). Note that part of the defaults on the 2009 portfolio has since been covered by Fusion’s risk sharing agreement, reducing the investor loss so far from 9% to 7% on loans from 2009. In 2010 less than 0,1% has defaulted so far, 6% is late, 52% on time and 42% repaid. But the 2010 portfolio is young and some deterioration should be expected in the future.
The next graph shows the effects of interest and currency on the picture.
The amount of interest earned on loans disbursed in each quarter is shown in green, the amount lost to defaults (less any recoveries) is shown in red, and currency gains or losses is shown in purple.
Ignoring the effects of currency for the moment, investments made through our current providers have made more on interest than they have lost to defaults every quarter except one since second quarter 2009 . Fourth quarter 2009 is actually also positive now that Fusion has covered their risk sharing commitments.
The full picture once the effects of currency are included is less positive. In general the strengthening euro has resulted in currency losses for the investors. Adding together the effects of interest, currency and defaults, investors are earning a net positive return on loans disbursed in Q2 and Q3 2009 and Q1 2010.
Adding up the total portfolio disbursed since Q2 2009 by our current providers shows a small net gain of 0,7%. Again, the 2010 portfolio is still young, so additional defaults on this portfolio should be expected as the portfolio ages, though currency effects could go either way.
We will continue to focus on reducing risk and improving investor return in 2011, but risk is inherent in our mission of funding un-banked and under-banked small business in Africa.