In the recent past, we have had several loans defaulting on MYC4 from KEEF, Mtaji and Milango providers. These defaults are due to the following: The Milango Management and Board disagreed on the direction of the company and the shareholders resorted to settle the dispute in court. As a result, most borrowers are holding back on their repayments and taking advantage of the clear lack of management oversight. KEEF was plagued by internal fraud amongst their loan officers. KEEF’s decision to stop all operations pending investigations as opposed to a professional audit by a forensic team as well as their lack of cooperation on MYC4 repayment matters. Mtaji are making repayments albeit slowly and with a decline in frequency.
In this blog post, we shall seek to give insight on defaults, how they occur, what they mean and the process of recovery.
MYC4 loans default on attaining 180 days late in repyments. Once loans default, they are no longer visible on your active portfolio. However, you can still view these loans.
To view which of your loans have defaulted:
1. Log into your account.
2. On the left side there are options, click on investments.
3. When you click on investments, more options come up, click on defaults.This will show you the loans that have defaulted.
At this point, the defaulted loans do not attract interest. Consequently, there is a drop in an investors’ account balance. At this point, the defaulted loans do not attract any interest. Nevertheless, investors still have a claim to their funds, which will stream into their accounts in the form of recoveries from the provider over a period of time. When loans default, providers are required to pay them in full on MYC4 – and then pursue recoveries from the borrowers: In pursuing recoveries of defaulted loans from the borrowers, the providers are free to enforce their rights to recover against collateral provided.
It is a requirement that providers take full responsibility for the MYC4 portfolio they are handling; and they have all signed 100% Risk Guarantee Agreements against defaults. To ensure that there will be sufficient liquidity to pay for the loans as they default, MYC4 demands that providers hold 15% of outstanding portfolio in liquid assets (Referred to as the Risk Guarantee Fund): industry standard (outer limit) for default rate in the microfinance industry is 2%. In the ordinary course of business, MYC4 loans default at a rate that providers are easily comfortable to pay the defaulted loans without having to dig into the Risk Guarantee Fund.
If the provider continues running as an institution, they are obligated to collect the outstanding funds and pay pack as recoveries to investors via MYC4. If the provider defaults or ceases running as an institution, MYC4 taps into the 15-20% Guarantee fund and channels these funds back to investors. Providers will normally only stop repaying in case of institutional collapse, whereby investors will only receive the 15-20% back, which the Provider has deposited under the Risk Guarantee agreement.
Many providers go through difficult periods where they manage to restructure and continue operations. MYC4 usually takes a constructive approach and tries to help the providers to survive. However, MYC4 does not allow re-scheduling of loans: Thus whereas a provider may decide to alter/ reschedule repayment agreements with their borrowers, on MYC4 the loans will continue appearing as defaulted on MYC4, even as the repayments are received.
MYC4 engages all avenues to ensure repayments are recovered and as such, even though the defaulting means that repayments are late, the funds will still come trickling in. For instance, in mid 2012, our Ghanaian provider at the time PRC lacked sufficient institutional capacity to handle follow ups on delinquent loans. PRC was consequently paused from uploading new loans to the platform 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 as loans were being repaid. However the pace of repayments slowed down and most of the outstanding principal had to be defaulted. Despite the default, repayments have been coming in, albeit at a slower pace. Recovery of their defaulted portfolio is over 70% now and the outstanding balance is almost fully repaid.
MYC4 would like to thank our investors for the unwavering support throughout most of year 2014. MYC4 is seeking all avenues to ensure safety of your investment and continued trust in the MYC4 Platform. The defaulting situation as pronounced by KEEF is both unfortunate and regrettable. MYC4 operations and processes have learnt a great deal from the KEEF situation. MYC4 therefore appreciates that the unsettling nature of the current situation and the anxiety that accompanies it. We request our investors to hold on as we seek solutions to the current concern. MYC4 is dedicated to improve our service to investors and to create more awareness on MYC4 processes and operational procedures. We are partners in this and we are working tirelessly to bring this matter to book. Your patience so far, is most appreciated. We are open to offer further clarity and continuously engage with you to your satisfaction and comfort.