Quarterly Report – Q3 2014

Here is the third quarterly portfolio performance update of the year.

The 3^rd quarter of the year marked the 3^rd quarter of successive decline in disbursements. The term loan (wholesale loan) of 250,000 Euros to Premier Kenya accounted for 53% of disbursements in the quarter. The fraud situation at KEEF had a big effect on the quarter’s performance, given that KEEF had sizeable disbursements in previous quarters. Other contributory factors included the stopping of activities in two countries. We now have recruited experienced personnel so as to aggressively grow the Kenyan market and are optimistic of improved activity going forward. We have also engaged with Premier Kenya to upload the retail loans.

The portfolio quality declined sharply in the quarter. The portfolio at risk above 30 days (PAR30) closed the quarter at 54% and net defaults were at 4%. There were no defaults in the 3^rd quarter. Several factors have affected portfolio quality in the quarter including termination of activity in other East African countries, fraud situation at KEEF, shrinking portfolio size among others.

From an investor point of view, the overall net return is again positive at 0.8 % on loans disbursed by the current providers* in the last five years. This represents a drop compared to previous quarters, where the return revolved around the 1.5% mark. The investor interest has been low due to competition to fund the limited opportunities that were available in the quarter

Portfolio Performance – current providers* (click to enlarge)

The Portfolio Performance Graph above shows the performance of loans disbursed since 2010 divided by quarter of disbursement. The colour blue shows funds that have already been repaid, green shows amounts that are being repaid on time, yellow indicates the balances on loans that are currently more than 30 days late, while red shows the net defaulted principal (i.e. defaulted principal less recoveries).

The disbursements was distributed through 5 providers, all in Kenya; except a few from Tujijenge Uganda that had been funded close to their upload deadline of 30^th June. The wholesale loan of 250,000 Euro to Premier Kenya accounted for 53% of the disbursements in the quarter – being further testament of subdued activity in the quarter. The other portfolio was distributed among Yehu (27%), Jubilant (14%), Milango (5%) and Tujijenge Uganda (1%).

The distribution of the funds can be seen in the graph below.

Disbursements in € per provider in Q3 2013
(click to enlarge)

There were changes in terms of the profit and loss. Loans disbursed between Q2 2011 and Q4 2011 have experienced forex gain. 2012 were further affected by currency losses, but the overall net result of 13 of the last 14 quarters – the exception still being Q3 2012 – continues to be positive seeing as interest earned covers losses on currency (see graphs below). There have been significant defaults in the month of November 2014, which is reflecting on Q3 data (given that production of the Q3 report has been delayed, the status of defaulted loans do not represent the status as at end of Q3).

 

Profit & Loss – current providers* (click to enlarge)

Net profit & loss (sum of interest, defaults less recoveries, and currency gains/losses) – current providers* (click to enlarge)

The Profit & Loss graphs above show the current result on loans disbursed since 2010 divided by quarter of disbursement. In the first graph, the colour green shows the earned interest, the red indicates the net defaults (i.e. defaulted principal less recoveries), and the purple shows the net realised currency gains or losses. The second graph shows the same figures as a net sum to give an easy overview quarter by quarter.

The total MYC4 portfolio closed the quarter with an outstanding loan balance (OLB) of €1.96 million in 4,593 active loans. This is an increase from the previous quarter’s €1.79 million. Around 85% of the portfolio is concentrated in Kenya where KEEF is the largest provider; 9% is held in Uganda; and with 9% in Tanzania.

Remember that you can always monitor the development and performance of the portfolio in real-time by following this link: MYC4 Portfolio

 

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August Provider Update

The new provider update is ready for you below. This month we have information about KEEF, Mtaji, SISDO, Fanikiwa, Micro Africa, and PRC.

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KEEF

With an outstanding loan balance (OLB) of around €440,000, KEEF is one of the largest providers on the MYC4 platform. KEEF has been performing really well both on- and offline in its 19 months on the platform and the portfolio has been built steadily in a controlled way. This year it has been growing at an average of 3 % per month. At the moment, however, KEEF’s further growth is constrained by two MYC4 policies: first of all, one provider should not hold more than 20 % of MYC4’s overall OLB; and secondly, MYC4 should not hold more than 30 % of the provider’s total OLB. Both ceilings have been reached by KEEF at this point which means that MYC4 and KEEF will need to grow independently of each other before KEEF can grow again on the platform. Here it is worth noting, however, that repayments are coming in from KEEF’s borrowers on a weekly basis and investors will therefore still have the opportunity to fund new loans from KEEF as long as the value of these loans does not exceed the value of the repayments received.

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Mtaji Credit Facility Ltd

Mtaji has been a provider on the MYC4 platform for 6 months now and we therefore carried out an on-site pilot evaluation this month in accordance with our policies. The findings from the evaluation are positive and the pilot period can be considered mutually successful, especially considering the institution’s steady but consistent presence on the platform and its solid operations. It is expected that Mtaji’s activity on MYC4 will be largely unchanged in the months to come, meaning that the OLB will continue to grow at a relatively slow pace. Mtaji has so far disbursed a total of €130,866 in 125 loans and its current OLB on MYC4 is around €110,000.

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Fanikiwa Microfinance Company Ltd

Fanikiwa Microfinance Company Ltd (FMCL) has also been a provider on the MYC4 platform for 6 months and consequently a pilot evaluation was due this month. The outcome of the evaluation is positive and it is expected that we will soon see more loans from Fanikiwa on the platform. In the case of Fanikiwa, the pilot period on MYC4 has been somewhat irregular in the sense that the activity on the platform has been unpredictable – with a high level of uploads in the first three months, and hardly any in the following three – and the performance of the portfolio has not quite been satisfactory. The irregularity has to a large extent been due to a transition to new management (and the restructuring that followed) while the performance issues are caused by a lack of reconciliation between Fanikiwa’s own management information system (MIS) and the MYC4 platform, i.e. the relatively high PAR30 does not reflect the situation on the ground. This second issue is naturally being addressed.

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SISDO

August has been a month of ups and downs for SISDO on the MYC4 platform. A lot of loans were uploaded – a total of 140 to be precise – and successfully funded. This is a very positive development for SISDO volume wise considering that the portfolio has been stagnant since the beginning of the year. Unfortunately, it coincided with some delays in SISDO’s weekly repayment transfers to MYC4 which necessitated that the funds for disbursement were withheld. Consequently the loans are still pending on the MYC4 platform; the situation has been regularised though and we expect these loans to be disbursed by the end of this week.

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Micro Africa Ltd

Repayments from Micro Africa continue to come in on a regular basis and the exit is still progressing according to plan. Micro Africa’s OLB was reduced by another €77,000 in the month of August and it now remains with around 11 % of MYC4’s total portfolio. This is great news seeing as almost a third of our OLB was with Micro Africa four months ago when the exit was announced. Here it is important to note that MYC4’s OLB has in the meantime increased to reach €2.2 million owing to the growth of the other providers. The parting with Micro Africa has consequently not had as big an effect on the MYC4 portfolio as one could have feared at the time of exit.

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Premier Resource Consulting

PRC, the only remaining provider in West Africa, no longer has an active portfolio on the MYC4 platform. PRC does, however, have a defaulted portfolio of approximately €51,000 corresponding to a default rate of 10.5 %. We have previously given detailed updates on the situation with PRC – read one from June here and one from December here – and we will make sure to keep investors informed on what is happening with this defaulted portfolio in Ghana. In August, we received €2,000 from PRC which is in the process of being transferred back to investors. We expect these funds to be in investor accounts some time in September.

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Unfortunate things happen – this is credit!

Jobes Omondi is branch manager for Micro Africa’s largest branch, the one in Kawangware in Nairobi

Being branch manager for Micro Africa Jobes Omondi is a busy man. It’ Micro Africa’s biggest branch in a large area called Kawangware, a buzzing part of Nairobi. It’s nine in the morning, and he’s just out of a meeting with the credit committee which deals with loan applications every day. The applications also come in every morning. I want to know what it’s like to be a loan officer, what the challenges are, and Mr. Omondi, who used to be one, should know.

– The biggest challenge is when a loan defaults, when clients don’t pay or simply disappear. That’s the biggest problem: We can’t trace them. And that’s why we work hard on getting to know them real well. We take borrowers through referrals; the current groups refer new clients to us, which enables us to have a call back plan. The group members sign for each other, and we make sure they really know the conditions, says Jobes Omondi, who also knows about the challenges of being a branch manager.

– You have to understand the staff and meet their expectations. The loan officers, of which we have eight, have different temperaments, and I have to mentor them and lead them into a new culture.

Micro Africa mainly deals with group loans and some SME. Kawangware is a highly populated area, it’s a mixed market with slums and nicer areas. The middle class is slowly emerging here as elsewhere in Kenya.

Jobes Omondi and Ezekiel Kamanu at a group meeting in Kawangware

Ezekiel Kamanu is a loan officer who tells me about the difference between the active poor and the poor.

– The active poor has done something about his or her situation, maybe saved up some money. He can get a loan whereas the poor can only get charity and try to move up to be active poor, says Ezekiel Kamanu, who – when we talk about the fact that the borrowers are mainly women introduces me to an African saying: “It’s better to get a foolish husband than a foolish wife”, meaning that the wife can cover for a not so good husband, not the other way around (these are Ezekiel’s words, not mine!).

Ezekiel Kamanu, loan officer, Micro Africa

Both Ezekiel and Jobes have a background in banking. – As loan officer you have to break the ground and our muscle is much smaller, a loan officer makes a good banker. If you can make it in microfinance, you can make it everywhere, as teacher or as administrator. I can tell in five minutes, if a potential client will be a good customer or spend the money on something else. On any day you can either be very disappointed, when you have visited a group, or you can be very happy. With the first you just have to leave it behind you like dirty clothes and get on. You must be thorough and smart and stand strong in the wind, says Jobes.

Ezekiel: – I like my job, the best thing is to see the changes in peoples’ lives, to empower people. A full group cannot disappear. The idea of group loans is brilliant, we can manage the group. But sometimes people disappear: This is credit! It happens!

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Micro Africa has resumed uploading loans from Kenya

We’re pleased to see that investors can once again lend to entrepreneurs in Kenya through Micro Africa Ltd.

Right now Micro Africa has six new Kenyan loans open for bidding – and from what we’ve heard many more should be on the way. For instance there’s 26-year-old Ann who runs a retail shop and hopes to hire an assistant once her business expands. And there’s 44-year-old Daniel Ngumba who’s looking to buy two more cows.

One of Daniel Ngumba's cows

The platform has been slow on Kenyan opportunities for the last six-eight months. In fact Micro Africa hasn’t uploaded loans from Kenya for almost 1 year. So why did they decide to come back to the MYC4 platform?

James Mugambi, Executive Director of Micro Africa, explains:

– We have resumed posting loans on the MYC4 platform following the stabilisation of the Kenya shilling currency against major international currencies because we have always believed that MYC4’s way of raising Loan Capital for MFIs is very efficient.

– We as Micro Africa Directors do not have to spend a lot time and resources fundraising for working capital of our operations but can now instead concentrate in lending and Product Development. Our experience in fundraising from banks and other international funders take average of 6-8 months before we conclude the transaction. So MYC4’s platform is always a great relieve when it comes to accessing funds for our clients.

Micro Africa is not the only provider who’s active in Kenya. KEEF joined the platform last week and has already uploaded more than 40 loans. Read more about KEEF in this blog post or on their new provider profile.

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Nairobi trip , character building path, take 1

Busy sorting out goods

We stroll carefully on the unpaved road, passing a huge market. The place is buzzing with mainly food stalls, small M-Pesa agent hunts and clothing stalls. Business is a little slow despite that the pedestrians are rushing by quickly but skilfully to avoid muddy potholes on the road and to dodge other pedestrians. “HONK!” A loud car horn blasted through my ears, accompanied by loud Jamaican/rock music. I am right in the middle of a matatu park, I almost missed that fact as I concentrated to thread quickly and carefully behind Alan, my loan office for the day. I need to follow him closely as we need to meet a client.

Alan pointed out a potato wholesale market to me, not far after leaving the matatu park. Sacks of potatoes are stacked up carefully on both sides of the narrow alley. The traders are happy greeting me with “How Are you ?” and big smiles. Amazed with the greetings and with the sight of a wholesale market, we approached a onion market. Of course the two are are next to each other and of course within 10 minutes, I get to see a plastic sacks wholesale market too! Complementary products, lined side by side. Makes perfect sense !

Loan officer often visits both the client’s business location and home. Often meeting their spouse and children.

The observation almost always includes business physical condition and private home structures. Those physical characteristics often reveal the client’s priorities, both supporting the business and their family. Since the cashflow of a client’s business and family is often blurred in microfinance, it is important to review both sides of a client’s life. I guess it is not as black and white as in the western banks when one takes a business loan.

John wishes to take a second loan with Growth Africa. John makes brown sugar. Blocks and blocks of them, stored in a wooden shack at the back of his homes. He really like this storage, it has the best place to park, he unload his truck easily when the sugar blocks are processed and when he is loading it for customer delivery. John has been in this business for some time now and he knows exactly when his storage will need a good fix to prevent rain from destroying his inventory. I asked, what do your customer use the brown sugar for ? John smiled kindly and started telling me all the usage. I can clearly see how glad he is with his sales. His customers are mainly farmers, they use the brown sugar to preserve a type of grass, preserving the cows’ feed. I cherish his patience to teach me his trade.

Take 1 ends here, with a footnote, character evaluation + business potential = good screening process.

Written by Denise Tham

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