The only remaining MYC4 provider in West Africa, Premier Resource Consulting from Ghana, has been experiencing significant challenges in terms of institutional capacity and portfolio performance over the last 12-18 months. We gave a detailed update here on the blog back in December and we have made sure to include PRC in every monthly provider update this year. A couple of weeks ago, however, we could report that the majority of PRC’s remaining outstanding loan balance (OLB) had been defaulted; we therefore want to give some more details on the current situation in Ghana.
As we wrote in the last update, PRC has been active on the MYC4 platform since September 2008 and has over the years disbursed close to €490,000 to 57 small businesses in Ghana. PRC was part of the first “generation” of loan providers on MYC4 and managed to stay afloat even as other providers from those years were exiting due to malperformance, suspension, or even fraud. PRC has therefore had a good track record on the platform and has been an important part of MYC4’s journey, especially in the early years.
It became clear to us in the beginning of 2012 that PRC did not have the sufficient institutional capacity to handle collections and follow-ups on delinquent loans. PRC was consequently paused from uploading new loans to the platform in April last year in order to focus all efforts and resources on the management and monitoring of the loan portfolio. As intended, the outstanding loan portfolio reduced steadily month by month from April to October as loans were being repaid – a development that can be seen clearly in the graph above. Since then, the loan portfolio has been reducing at a much slower pace as repayments were received less frequently; and over the last three months, most of the remaining outstanding principal has had to ultimately be defaulted (less than €900 is now outstanding). The graph below shows PRC’s loan repayments and defaulted principal on a monthly basis from January 2012 to May 2013. Here it can be seen that close to €170,000 has been received in repayments in this period while around €50,000 has defaulted.
In 2010, PRC was one of the first MYC4 providers to sign a 100 % risk share agreement. Effectively it means that PRC is committed to cover 100 % of any defaulted amount, same as all other active providers on the MYC4 platform. With the introduction of these risk share agreements, the MYC4 investors no longer carry the risk of loan default – this risk has been moved to the providers. The investors do, however, still carry the risk of institutional default, meaning that investors may lose part of their outstanding principal in the event that a provider, such as PRC, should default. To safeguard against this risk, two measures have been introduced to the MYC4 model: first of all, each provider is required to cover the 100 % guarantee with a risk share instrument (e.g. bank guarantee, lien on bank deposit) equal to a certain percentage of its outstanding loan balance (OLB). For providers joining after 2011, the cover is between 15-20 % of the OLB. For PRC, the cover is 5 %. In the case of institutional default, MYC4 can call on the risk share cover to be returned to investors, thereby ensuring that at least a part of the outstanding principal is recovered. The percentages covered by the providers can be found on each of their profiles in the risk rating table; the second measure introduced is the provider risk rating. The risk rating is visible in the form of stars on each of the loans which allows investors to more easily assess the risk of lending through a certain provider on the platform. The fewer the stars, the higher the risk. In the case of PRC, its star rating is – and has consistently been – one of the poorest on the platform and the risk of institutional default should therefore also be considered significantly higher than for the other providers.
PRC is currently in the process of liquidating the bonds used as risk cover, and as soon as we receive these funds, they will be returned to investors. We are also following up on a number of repayments registered in the MYC4 system for which the funds are yet to be transferred. It is too soon to consider PRC to be defaulted as an institution, however it is a possible scenario. We will continue to work with PRC on minimising investor losses and we will also make sure to share the status on PRC in the monthly provider updates here on the blog.