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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September Provider Update

In this update, you can read about Yehu, Micro Africa, Gatsby, BELITA, and PRC. For previous updates, follow this link.

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Yehu Microfinance Trust

It’s been a while since we shared some news on Yehu. Essentially, Yehu has been operating quite effortlessly on the platform since the pilot review earlier in the year, and consequently there has not been a lot of information to share. As we have mentioned before, one of the main challenges for Yehu is volume seeing as its average loan size is very small (around €350). After some months of good growth on MYC4 – an average of 23 % monthly between May and August – the outstanding loan balance (OLB) has now reached €167,000. This is a positive development considering that Yehu began the year at €60,000.

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Micro Africa Ltd

Micro Africa Ltd (MAL) is now holding around 8 % of MYC4’s total outstanding loan balance (OLB) – down from close to 33 % at the time of exiting. In absolute numbers, it means that approximately €130,000 remains outstanding in Kenya while Uganda is left with just €50,000. Some of MAL’s loans in Kenya fell into arrears in the month of September which resulted in its PAR30 drastically increasing. This was due to a change of responsibilities in the organisation which necessitated a reconciliation by MAL staff with the support of the MYC4 team. The issue has been addressed and the situation is back to normal.

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Gatsby Microfinance Trust

In September, the risk cover of Gatsby (GMFL) was adjusted up from being 10 % of the outstanding loan balance (OLB) to 20 %. This increase was made as a reaction to some performance issues, more specifically due to the fact that GMFL’s PAR30 has been exceeding 5 % for a prolonged period of time. While all providers are required to guarantee their portfolios 100 %, the instrument used to support this guarantee differs from provider to provider (usually in terms of percentage covered). By increasing its risk cover, GMFL’s star rating on the platform has therefore been improved.

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BELITA

Since the first BELITA defaults hit the platform back in July, another 27 loans have defaulted, bringing the total to 40. Just 18 active loans remain which have a combined OLB of €7,500. BELITA continues to honour its risk guarantee agreement by returning the defaulted principal to investors. So far, close to 73 % has been recovered and new amounts continue to be repaid every 1-2 weeks. MYC4 is planning to do an annual review as well as a capacity building needs assessment of BELITA once this portfolio has been fully repaid to explore how best to proceed with the institution.

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Premier Resource Consulting

As we wrote in last month’s update, we had received some funds (€2,000) from PRC which were in the process of being transferred back to investors. In the meantime, we have received another repayment from PRC bringing the total to approximately €4,600. We managed to receive these funds about three weeks ago which allowed for the pending repayments to be processed (i.e. credited to investor accounts). PRC has informed us that another repayment should be on the way which we will naturally follow up on in order to recover as much as possible of the defaulted principal.

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June Provider Update

We are three days in to the month of July so it is about time that we give you the provider update for June. As usual, you can read more about selected providers below.

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Micro Africa Ltd

Since the Micro Africa Ltd (MAL) exit was announced in April, MAL’s loans have been repaying consistently and without delays. The portfolio was reduced by €90,000 in May, and in June another €80,000 has been repaid. The total outstanding loan balance of Micro Africa in all three countries of operation – Kenya, Uganda, and Rwanda – is now €470,000 which corresponds to approximately 22 % of MYC4’s total portfolio. In the month of April, MAL’s share of the portfolio was close to 30 %, i.e. the portfolio is reducing relatively rapidly as expected.

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Tujijenge Uganda Ltd

The most recent spot check of Tujijenge Uganda (TUG) revealed some operational shortcomings in terms of adherence with the MYC4 model. More specifically, it showed that Tujijenge Uganda had been pre-funding some loans, meaning that loans were disbursed to borrowers before receiving funds from the MYC4 investors. In order to address this, Tujijenge Uganda has been temporarily paused from uploading new loans to the platform. Furthermore, these shortcomings resulted in TUG receiving a low spot check score of 4. We expect to see new loans on the platform again soon, albeit at a lower volume as TUG will be working on diversifying its sources of funding going forward.

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Fanikiwa Microfinance Company Ltd

Fanikiwa joined the MYC4 platform in February this year and managed to grow its portfolio in a matter of months. The activity was slowed down when the maximum outstanding loan balance was reached and since then we have seen very few Fanikiwa loans on the platform. This is mainly due to two things: Fanikiwa is first of all a young institution which continuously works on building capacity. As part of these efforts, Fanikiwa is currently going through a process of organisational restructuring; secondly, Fanikiwa is waiting for MYC4 to carry out a pilot evaluation which has been postponed to after the restructuring has been completed.

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SISDO

When SISDO came back to the platform in April – after addressing some operational challenges that had resulted in a poor portfolio performance – it was expected that SISDO would double its OLB of €140,000 at the time. While this projected volume has not materialised (the OLB has been stagnant at €140,000), the performance has been very good in the last 3 months. SISDO is currently working on introducing two new loan products, one in agriculture and one in asset financing. The new products will enable SISDO to include more branches in its activities on the MYC4 platform.

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BELITA

BELITA is still paused from further uploads to the platform. The problems for BELITA have primarily stemmed from imprudent liquidity management and deficiencies in the processing of loan repayments. These challenges are part of the growth curve of young MFIs, and we feel confident that BELITA has learned a costly lesson – and will emerge stronger. The total disbursement to BELITA amounts to €130,040 of which more than 80% has so far been repaid (excl. interest). BELITA remains committed to repaying the remaining outstanding balance on MYC4, and it is positive to note that its risk guarantee fund, held in the form of a fixed deposit account, now covers 94% of the OLB.

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Premier Resource Consulting

PRC no longer has an active portfolio on MYC4.

We gave a detailed update on the situation with our only remaining provider in West Africa in a blog post a couple of weeks ago (read Update on PRC). Unfortunately we have no other news to share this month, but we will of course be back with more information as soon as there are any new developments in Ghana.

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Update on PRC

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.

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April Provider Update

Another month has passed, another update is ready for you: here is the April Provider Update.

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Micro Africa Ltd

This month we have some big news on Micro Africa. As we reported in the last update, Micro Africa Ltd has been acquired 100 % by Letshego Holdings Ltd, a financial services company from Botswana. In a board meeting last week, it was decided that Letshego will handle all of Micro Africa’s funding needs going forward. Consequently Micro Africa Ltd will exit as a provider on MYC4, meaning that no new loans will be uploaded for bidding. All outstanding loans will be repaying as planned.

For MYC4 it is naturally sad to say goodbye to one of the oldest and largest providers on the platform; at the same time, it is a great satisfaction to have witnessed and supported Micro Africa’s growth over the years, from being a small MFI with 4,200 borrowers to its current position as the largest credit only MFI in Kenya with more than 45,000 clients.

We will be back next week with more information on the exit, including a letter from Micro Africa.

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Fanikiwa Microfinance Company Ltd

Fanikiwa Microfinance Company Ltd from Tanzania has now been a provider on the MYC4 platform for 2 months. The partnership with Fanikiwa has been impeccable so far, and more than €100,000 has already been disbursed to 64 individuals and groups. On the repayment side, investors have received around €3,000 without delays. The maximum outstanding loan balance (OLB) for the pilot has almost been reached, however, which is why Fanikiwa has had to slow down on the number of open loans. The volume is expected to increase following the pilot evaluation which is due in 1-2 months’ time.

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SISDO

In April, we finally saw the return of SISDO to the platform with around 20 new loans opened for bidding. SISDO had been paused from uploading loans most of this year; first due to its pending pilot evaluation, and subsequently due to some operational challenges that led to performance issues. Now that SISDO is back, we expect to see a good deal of new loans in the coming months seeing as SISDO has the size and capacity to manage a larger loan portfolio on MYC4 than its current €140,000. It is consequently expected that SISDO will more or less double its MYC4 portfolio this quarter.

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Premier Resource Consulting

The two batches of repayments, a total of €5,250, that had been pending transfer since February, were returned to investors in the month of April. This meant that three PRC loans became fully repaid, namely Bokass Susu Enterprise, Koranch Ventures, and ChrisBud Enterprise. A number of new repayments, totalling approximately €7,500, were registered on the MYC4 platform and they are now in the process of being transferred and returned to investors as well. There is not a lot to report on the coverage of the defaulted loans, unfortunately, except that it is expected of PRC that the first recoveries should be reflected on the MYC4 platform soon.

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Growth Africa Ltd

The partnership with Growth Africa was terminated in 2011, and Micro Africa Ltd has since then been responsible for the Growth Africa portfolio. The final 9 active loans were defaulted in the last week of April which means that Growth Africa no longer has an outstanding balance on MYC4. These loans had been more than 90 % repaid by the borrowers, but it was necessary to default them to avoid further interest accumulation. Micro Africa is committed to continue handling the Growth Africa portfolio, and will be meeting with MYC4 Staff in May to review the progress of the collection efforts on the defaulted portfolio.

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Those were all the news we had to share this month. If you want particular providers to be included in the monthly updates, let me know. You are also very welcome to follow me on twitter for more regular operational information, news, and interaction: twitter.com/githakurdahl

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March Provider Update

As we close for the Easter break, here is this month’s provider update.

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Micro Africa Ltd

With close to €650,000 outstanding in more than 1,300 loans, the Micro Africa group is by far the largest provider on the MYC4 platform. This is also evident from the number of open loans today where 2/3rds are from one of the three Micro Africa subsidiaries (in Kenya, Uganda, and Rwanda). Micro Africa Ltd was recently acquired by Letshego Holdings Ltd from Botswana, and in Kenya, Micro Africa has become the largest credit only MFI. In Uganda, the institution is also growing fast, now with more than 12,000 clients and the intention to double in 2013. RML in Rwanda is in the process of converting into a deposit taking institution.

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Yehu Microfinance Trust

The pilot evaluation was successfully completed this month, despite some delays due to planning and hesitancy around the presidential election in Kenya. Overall, things are looking good with the Mombasa-based institution; Yehu’s own outstanding loan balance (OLB) grew by 31% in 2012, and there were also increases in terms of profit, operational self sustainability, and return on equity. Yehu has picked up its volume on the MYC4 platform this year, and the OLB is growing slowly (now at around €65,000 in 220 loans). In light of the evaluation, we are hoping to see Yehu add at least another €100,000 to its MYC4 portfolio in the coming quarter.

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Tujijenge Uganda Ltd

The bi-annual spot check of Tujijenge Uganda was completed last week. The key takeaways were that the institution is following sound risk management principles and remain committed to uplifting the bottom of the pyramid (BOP), meaning people from the poorest socio-economic group. Tujijenge Uganda remains small, however, and it is therefore not expected that its portfolio on MYC4 will grow much in the short to medium term. Its current outstanding loan balance on MYC4 is around €95,000 (in close to 330 loans) which fits well with Tujijenge Uganda’s current institutional and absorptive capacity.

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SISDO

It has been a while since we saw new loans from SISDO on the platform. First, SISDO was paused awaiting the pilot evaluation back in January as its maximum OLB ceiling had been reached during the pilot period. Then there were some challenges in terms of performance due to operational teething problems in February. Our team in Nairobi has been supporting SISDO with the systems reconciliation and the portfolio at risk above 30 days (PAR30) is now back at 0 %. We are therefore hopeful that SISDO will start uploading loans to the platform again in the coming month.

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Gatsby Microfinance Ltd

The bi-annual spot check of Gatsby Microfinance Ltd (GMFL) was completed last week and it showed adherence to the MYC4 model and sound credit risk management principles (incl. thorough loan appraisal and approval procedures). The institution is in the process of implementing its five-year strategic plan that focuses on efficiency of operations. Although GMFL is no longer the largest provider on the platform, it remains one of the most significant volume wise and still holds 25 % of MYC4’s loan portfolio. Similarly, MYC4 funding constitutes a large share of GMFL’s total portfolio and it is therefore mutually beneficial that the volume of uploads is kept relatively low for the time being.

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BELITA

The smallest provider on the platform, BELITA, has been having some challenges with its portfolio performance since the middle of last year. While new loan uploads are suspended, repayments continue to come through on a monthly basis. The outstanding loan balance (OLB) is now around €31,000, meaning that another €2,500 was returned to investors this month. BELITA is working on injecting more capital into the institution and remains committed to clear the arrears. So far, no BELITA loans have been defaulted on the MYC4 platform.

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Premier Resource Consulting

Bad news this month as three PRC loans defaulted on the platform, namely Carnifresh Establishment, Nagee Ventures and Brain Box Limited, thereby making PRC’s default percentage increase from 2.57 to 3.78 %. PRC has been working with a local debt collector and a lawyer to follow up on the delinquent portfolio for a while, but this process is cumbersome and is progressing slowly. In the meantime, PRC has been asked by MYC4 to exercise the risk sharing agreement signed in 2010 which we should have more news on in next month’s update. The two batches of repayments received in Ghana in February is still in the process of being transferred back to MYC4 and investors.

For more details on PRC, see this blog post from December: Update on PRC

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BIRIMA

We were asked by some investors to include an update on BIRIMA this month. BIRIMA was founded by Youssou Ndour, the Grammy-winning musician from Senegal, and it joined the MYC4 platform back in 2008. Following the default of more than 60 % of its portfolio, BIRIMA was suspended from the MYC4 platform in 2010 and is considered to be part of MYC4’s old portfolio. So far, 21 % of the defaults have been recovered for investors, with the most recent round of recoveries being returned in December 2012. The case in Senegal was handed over to legal enforcement mid last year, following another breach of agreement by BIRIMA, and we are currently waiting for the outcome of this situation to be known in the next couple of months. We will make sure to post here on the blog as soon as we have some news to share.

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Check back in the last week of April for the next provider update.

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