Thoughts of an early MYC4 investor

Hi Erik, first of all thank you for participating. Can you start out by telling us a little about yourself and your motivation for using MYC4?

The motivation is quite clear; it has its background in my upbringing and interests.

Through all their life my parents were part of a group supporting two persons from the group that became missionaries, one working in Africa and another in Bangladesh. Therefore the idea of helping in Africa was obvious to me. So when I got the possibility to do my national service as a volunteer in Africa I went 3 years to Zambia teaching in a Secondary School far out in the bush in Mwinilunga.

On top of that I have worked with computers my whole life since I first programmed a Gier computer at Århus University 48 years ago. All my life I have been interested in the idea that computers are an instrument that should help us to better lives.

Therefore, when I heard of this initiative it was simply a must for me to participate.

At the same time I am hooked upon the idea of transparency which was and is rather high in MYC4.

You are an early investor and have used MYC4 through ups and downs, what has influenced you to still use MYC4?

As I said before my primary goal was not to earn a lot of money investing in MYC4, it was the interest in supporting the idea which I felt quite right and fairly good implemented.

On the other hand I would not spend 12000 euro if I did not have a hope of getting the money back possibly with some interest.

During all the years I have been very conscious of the big risk at this project. Of course I knew of the risk and had considered it carefully. Generally I had 3 types of risk in consideration: risk at the single business in Africa, risk at the provider, and risk at MYC4. In the beginning of my investment I was most afraid of the risk that MYC4 itself should collapse, because then I would have no possibility to claim my money back from all the different loaners.

But I probably accepted that risk because I knew about the Kjær Auto in Svendborg from my time in Zambia and felt rightly that they were some kind of the initiators.

So my loss of 3000 euro in the “bad” period was partly calculated and could not get me to stop. I would not like to lose all the money of course, but I could live with it if it should happen. I am still eager to help prove that MYC4 is a good idea. So I still have on my monthly budget to put some new money into MYC4.

My strategy of investment during this period has changed quite much. The criteria been: mainly small business, mainly education, mainly agriculture, looking at the collateral, and now mainly looking at the interest at the same time as I want many businesses’ to get loan and still I prefer either education or a kind of production in farming or craft or industry.

If you should present MYC4 to someone who had never heard about us before, what would you emphasize?

It is a little difficult, I rarely try to persuade my friends, it is not ethical with a risk of that size, but I often tell what I do myself and why I do it, just as I have done above. And a few times I have given an investment as a gift, once to a guy that has been very active making software for schools online before we knew about the internet.

What do you think is some of the best things that have happened on MYC4 through the years?

It can only be that MYC4 has more control with the providers, and help them to perform better with less loss. Without that you could never get people to invest or give gifts for that matter. You did see yourself the huge drop in investments after all the defaults. So both for MYC4, the loaners and me it was a great thing to happen.

But of course all the small changes make a difference too: The possibility to want a certain interest but accept an interest 5% lower if necessary to get the loan closed. And the newly change where the automatic bids only fill up loans until they are secured and then continue filling up the next loans that need funds.

If you could tell everyone about one aspect in relation to MYC4, critical or positive, what would you tell about?

Of course I would tell about the fairly good transparency, although I could wish that it was easier to follow each single loaner, but I am fully aware that it is not possibly today. It will take too much energy to implement and I can live without it, but I look forward to the day where several loaners get good internet and by themselves and for themselves want to communicate their problems and fortunes in a kind of intranet of MYC4, then we might even get exchange of knowledge about the problems and involvement in the problems leading to default . But I also know that it is a very difficult issue because it is not only a problem of time of the loaner, it is also a problem of my time, the time of the lender. I do not have time to follow all the loaners when I only lend out 50 euro to each. It is for the same reason I am not active on Facebook. I have actually studied that issue thoroughly in connection with discussions in net based learning where both the writer and the readers must have enough time for engaging in a discussion.

I might mention one other aspect with MYC4 that is remarkably: It is possible to have investors together with persons that will help without wanting interest or just a minor interest. Today there are mainly investors and that is necessary if you want a big impact, but you still find the others providing money  for very little interest and you find quite many that want a reasonably interest, but also want as many projects to be financed as possible.

One thing has puzzled me: MYC4 tries to be very transparent. Then why are so many persons investing anonymous? It also goes against the trend of putting everything on the internet via one or all of the social medias. Is it still a taboo to talk about money and show what you spend?

What do you consider as competitors/alternatives to MYC4?

I have always given donations to some organizations regularly, but as that is a gift I do not give so much money. (My budget for that is merely 15 euro a month to 5-6 organizations each and it has not changed after investing in MYC4). It has been a question for me if I should drop some of those and invest more in MYC4 instead, but I decided not to.

Some years ago I also gave money to a system like MYC4 but where it was donations to specific projects and specific organizations and it was all done on the internet. I do not remember the name but it never became very big so I left that project.

I have also considered a bank that has projects in Africa (Oikos) but I felt it too difficult to follow the money, I would not be able to follow the money as close as in MYC4.

And then there is also the possibility to invest directly into projects and persons I know personally. And I have done that in minor scale to a friend in Malawi employed at a university where I taught for 5 month 2 years ago.

What do you think MYC4 will look like in the future?

I am confident that MYC4 as an idea will continue to grow and there will be more interaction between lender and borrower, but if some other groups with the same idea will take over MYC4 is difficult to foresee. And it is impossible to know if MYC4 will be the bigger one and take over others. But I do not care much who the owner is, as long as the African people benefit. From the yearly account it is obvious that MYC4 has to grow to survive. We can just hope that the routines to control loss are robust and can work even when they are managed by different persons in a bigger scale.

And I am sure that we see the development in Africa that we have been waiting for in many years, and that will not stop, so there will be a need for funds to small projects in many years to come. And MYC4 is a good alternative supplier.

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“Teach that man to fish”

It’s time for a new investor testimonial; below you can read some of Payam Samarghandis (investor since 2007) thoughts about MYC4 and what could be improved. When we contacted Payam Samarghandi, he immediately offered to help us out with a little interview.

 

Hi Payam, first of all thanks for participating, can you tell us a little about yourself and your motivation for using MYC4?
I am 22 years old, I live in Denmark and I’m studying law. What perhaps sets me apart from other people at my age is that I am very interested in society in general and the structure of this – and it was exactly because of this interest that I became aware of the existence of MYC4 a few years ago. Through MYC4, I can participate in building a sustainable Africa where it is the Africans themselves who serve as the engine for this. The idea that it is the private initiative, without help from government supported institutions, and that I can be part of an ambitious and long-term project to improve the living standards in Africa aroused my interest.

In contrast to the numerous donations given every year to aid, in the traditional way, here is a project that puts real demand on the recipients of contributions – a necessary requirement, which means that society grows and Africans learn to reflect independently.

The road to hell is often paved with good intentions, and no matter how controversial it may sound, I am of the opinion that aid which simply provides food on the table for a short time, maintains Africa at a stage where they always will depend on the West. “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime”. This saying illustrates, in fact, my enthusiasm for MYC4 to the fullest.

If you could tell the readers on the blog about one single aspect in relation to MYC4, critical or positive, what would you highlight?

To me MYC4 is pure idealism. Although we have not yet seen the long-term impact of microloans, it indeed has much potential to it and if the full effect is achieved, this might likely be a small step towards something bigger.

What is the best (and worst) thing about MYC4?

Although MYC4 has increased the transparency, it may still discourage potential lenders that Africans have full disposal of your money. Many questions and hypothetical situations may arise and it may deter people from investing the amount that they had intended. Similarly, transparency can also be increased after you have provided the loan so that it accurately illustrates how much you have earned in return, exchange rate fluctuations, etc.

The positive aspect is that every citizen is given an opportunity to provide a unique support to Africa. The underlying idea and purpose with MYC4 is indeed something that I support.

One challenge for MYC4 is also to promote at a much larger scale so that the common citizen would have a better understanding as to the underlying idea behind MYC4, and hereby make it more well-known to provide microloans.

If you should present MYC4 to someone who had never heard about us before, what would you emphasize?

As mentioned previously: “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” Hopefully, this is the beginning of a general reconsideration of the question of how we in the best possibly way can provide help to Africa. All countries have been through crises, yet none of them have survived these without taking an initiative.

What do you consider as competitors/alternatives to MYC4?

In Denmark, just to mention one example, a fundraising for Africa takes place each year. This year alone more than 10 million Euro was donated; this money will be managed by various aid agencies and used to build schools, provide people with food and so forth. But what will the Africans have achieved when the money runs out? Will they be ready to support themselves? Imagine if a fraction of the annual millions could be lent through MYC4 in revolving funds. A challenge for MYC4 could thus be to target these fundraisings and channel some of the many millions in revolving funds to microloans.

What do you think MYC4 will look like in the future?

I think MYC4 will serve as a great marketplace for microloans, not only in East Africa, but also in other places in the world where it is needed. The demand to lend money will increase as the system is recommended in the population, and many businesses and investment funds will see the possibility of placing their money in microloans, while simultaneously building a strong social profile.

Do you have any ideas/ improvements for MYC4 that you would like to share with the readers and us?

I think MYC4 would benefit from working together with strong social profiles that will support and act as ambassadors. For people who don’t know much about MYC4, it can quickly discourage them that your money is being lent to people in a continent that is known for having a high degree of corruption. MYC4 must therefore ensure to communicate the safety of the system so as to encourage various investors and investment funds to use MYC4 as an investment vehicle in order to increase the living standards for the people in Africa.

Thank you to Payam for his inputs and opinions. And remember, I’m still only a click away if you want your story told: karl@myc4.com.

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How we made it in Africa

Last week MYC4 was featured on How we made it in Africa, in their Business Focus section. How we made it in Africa is an online business blog where readers can access news and development information from across Africa.

Eric Naivasha, MYC4’s Africa Director, is interviewed by Difin Mulupi. In the interview, Difin and Eric talk about what MYC4 is, how our business model works, whether the business model can be profitable for MYC4 investors, who can invest on MYC4, the impact MYC4 has had on African businesses, challenges and future plans.

One of the interesting things that was mentioned and we would like to highlight from the interview is our future business plan;

We want to move into the rest of Africa by 2015. We will be looking at the Southern African and West African regions. We also want to register a lot of business, like MYC4 East Africa Limited and have local shareholders. We will also expand our partners to about 45 micro-finance institutions which will use MYC4 as a funding platform.

If you want to read the rest of the interview please follow the direct link or click on the picture.

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Portfolio Performance 3rd Quarter 2011

Another three months have passed, so here is the quarterly update on the performance of the MYC4 portfolio.

Let us start with the good news. Loans disbursed in the last two years by our current providers continue to return more in interest than what is lost in defaults. This portfolio now shows a net return of 3.5 % before currency. It is also positive to note that €547,058 were disbursed in the quarter which is the highest volume of disbursements in two years (all partners included).

Out of the almost €4.2 million disbursed since Q2 2009, 71 % has now been repaid, 24 % is being paid back on time, 3 % is repaying late, and 2 % has defaulted. This is visualised in the graph below which shows the current status for the loans disbursed in each quarter by the active MYC4 partners.

Portfolio Performance Current Partners (click to enlarge)

Now to the bad news. MYC4 investors continue to be hit hard by currency losses. This topic has previously been explored here on the blog in the posts As the Shillings Slide and Gatsby Uganda introduces new loan products in response to the sliding shilling. Click on the two links to read more about how the current rough patch of the East African currencies are affecting MYC4 investors, and also how one provider has decided to react to these developments by offering higher returns to investors.

When currency gains/losses are included in the equation, the net return for investors becomes -3.4% on the portfolio disbursed by the current MYC4 partners in the last two years (see graph below). For loans disbursed in 2010, the result will not change much as 89 % of these funds have already been repaid. The 2011 portfolio still has 62 % of the funds outstanding, thus the picture can still change for these loans in the next couple of months depending on the development of the currencies.

Profit/Loss Current Partners, incl. Currency (click to enlarge)

The final graph includes the historical perspective by showing the performance of the entire MYC4 portfolio since the beginning. The performance of the 2008/2009 portfolio has been analysed in detail in the previous portfolio performance posts, particularly in the one focusing on 2010.

Portfolio Performance All Partners (click to enlarge)

Finally, as we also reported last quarter, the active partners have all resolved to improve the MYC4 portfolio quality by reducing the Portfolio at Risk (PAR), i.e. the part of the outstanding portfolio that is more than 30 days late, from 15 % to below 5 % in 2011. At the end of Q1, the PAR was reduced to 11 % while Q2 ended with a PAR of 8 %. In Q3, we have witnessed a small increase in the PAR to 12 %. In the last three months of the year, we will strengthen our focus on reducing the PAR to below 5 %.

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Gatsby Uganda introduces new loan products in response to the sliding shilling

It is no secret that MYC4 investors have been hit hard by currency losses this year. One of our biggest providers, Gatsby Uganda, has decided to act on this fact by introducing new loan products which offer a higher interest rate to investors. Titus Kuria, MYC4’s Credit Operations Manager has worked closely with Gatsby over the last couple of weeks to ensure that the new products are well thought through.

-The Investor Interest Rate is a key determinant of funding. The key thing here is to strike a balance between offering an attractive interest rate to the investors while maintaining a healthy APR to borrowers, Titus explains.

APR means Annual Percentage Rate and is an expression of the effective interest rate that a borrower pays on a loan annually. To accommodate this balance, Gatsby has reduced its own closing fee from 5 to 2 % on selected products and increased the maximum investor rate from 16 to 20 %. The cost to the borrower is thereby unchanged, but investors will have a greater opportunity to make a positive return on Gatsby’s loans.

Gatsby's CEO, Christopher Lumala, in his office

The new products can already be seen on Gatsby’s profile page and the first loans with higher investor interest rates are expected on the platform this afternoon.

As we reported here on the blog last week in a post about the East African currencies, MYC4 wants to encourage investors who invest with an objective of making a positive return to take currency risk into account. This may be done either through demanding higher interest rates or through investing in countries with more stable currencies.

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Portfolio Performance 2nd Quarter 2011

It is time for the quarterly update on how loans made through MYC4 are doing in terms of repayments, defaults and currency. Follow these links for our previous overviews on Portfolio Performance 2010 and Portfolio Performance 1st Quarter 2011, and read on for an update on the numbers as of June 30th, 2011.

Loans from our current providers disbursed in the last two years have, on the average, returned more in interest than they have lost in defaults, and this portfolio shows a net return for investors of 3.3 % before currency. These gains have been reduced due to currency losses because of the continued weakening of the African currencies relative to the Euro. While we could report a net positive return of just under 1 % last quarter, the currency effects result in a negative return of -0.9% as of June 30th 2011 for the total portfolio disbursed since Q2 2009 by our current partners.

The performance of our partners has continued the positive trend that we reported earlier this year. At the partner conference in Nairobi in January, the partners all resolved to improve the MYC4 portfolio quality by reducing the Portfolio at Risk (PAR), i.e. the part of the outstanding portfolio that is more than 30 days late, from 15 % to below 5 % in 2011. At the end of Q1, the PAR was reduced to 11 % while Q2 ended with a PAR of 8 %.

 

All Partners

Portfolio Performance All Partners

This graph shows the status on June 30th, 2011 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).

While approximately 40% of the funds disbursed before Q3 2009 defaulted, there is a sustained improving trend for loans disbursed from Q4 2009. Of the funds disbursed in the first half of 2010 about 2% has defaulted so far and almost 94% of the portfolio for this period is either already repaid (90%) or repaying on schedule (4%) while 4% is late. Loans disbursed since mid-2010 are still too young to judge accurately, but more than 96% of the funds disbursed during this period are either repaid (44 %) or repaying on time (52 %).

The graph also illustrates that the volume of disbursements has been steady since Q2 2010 with around EUR 500,000 lent out in each quarter. This result is in line with MYC4’s strategic focus on improving the quality of the portfolio and reduction of risk rather than growing the volume.

 

Current Partners

The next graph shows the same data as the previous chart, but only for currently active partners (Growth Africa, Micro Africa, Fusion, Tujijenge, Gatsby, PRC, Makao Mashinani). 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 have been suspended since 2009, the 2010-11 numbers on this chart are identical to the previous chart.

Portfolio Performance Current Partners

The defaults within this portfolio are primarily due to two partners – Growth Africa and Gatsby who had some early problems, but are doing better now. In fact, Gatsby has continued to make significant progress on recoveries of defaulted loans with a 31% recovery rate to date (more than EUR 64,500 recovered). The overall performance of the loans disbursed by current partners since March 2009 is as follows: 70% repaid, 26% repaying on time, 2% late, and 2% defaulted.

Seen year-by-year there is a small improvement from loans disbursed in 2008 (15% default, 85% repaid) to loans disbursed in 2009 (7% default, 91% repaid, 2 % on time) and 2010 (1% defaulted so far, 77% repaid, 18 % paying on time, 4 % late). The 2011 portfolio is still young and some deterioration should be expected in the future, but so far 24 % is repaid, 75 % is on time, and 1 % is more than 30 days late.

The next two graphs include the effects of interest and currency to get the net return of the portfolio. 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 gained more on interest than they have lost to defaults every quarter in the last nine quarters (illustrated in the chart below). Adding up the total portfolio disbursed since Q2 2009 by current providers shows a net return for investors of 3.3 % before currency.

Profit/Loss, excluding currency

The full picture once the effects of currency are included is less positive. As reported in the previous update, currency losses on the portfolio have been larger than the interest made by investors on the portfolio disbursed since Q2 2010. Unfortunately, this trend has continued in the second quarter of 2011 (see graph below). The currency effects therefore result in a negative return of -0.9% as at June 30^th 2011 for the total portfolio disbursed since Q2 2009 by our current partners.

Profit/Loss, including currency

Thanks to our partners for what they have achieved in this period as to strengthening the portfolio. We will continue to focus on reducing risk and improving investor return in 2011, yet risk is inherent in our mission of funding un-banked and under-banked small businesses in Africa.

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What’s the net result of my investments?

Whether you are a social or commercial investor on MYC4, or perhaps something in-between, one of the thrilling – and at times frustrating – things about investing on the platform is to follow the performance of your own loan portfolio. Which of my loans have been fully repaid? Are any of my loans at risk of defaulting? What is the net result of my investments?

We are often contacted by investors who are trying to find the answer to the last question. They are rarely looking for fancy ratios or complicated calculations, yet they do not feel that their MYC4 account supplies the simple information they need. If you are one of those investors, this basic tutorial should help you solve the problem.

You will find the data you need on your Profit and Loss page. Log on to www.myc4.com, click on My Account, and go to Profit and Loss in the left hand menu. Here you will see your profit and loss for 2011. Select All Years.

There are a number of figures here which may be of interest to you, but to calculate your result you only need the following:

• Earned interest after tax and currency
• Defaulted principal
• Recovered principal
• Currency gain/loss on principal

As the text indicates, the figure for earned interest is already accounting for withholding tax and currency, however there is almost always a currency effect on the loan principal as well. An important parameter to remember is therefore currency gain/loss on principal.

The actual calculation should be done as follows: Earned interest after tax and currency minus Defaulted principal plus Recovered principal plus Currency gain on principal OR minus currency loss on principal.

Here are a couple of examples with data from two MYC4 investor accounts:

Example 1

• Earned interest after tax and currency: 4,009.27
• Defaulted principal: 353.77
• Recovered principal: 0.00
• Currency gain/loss on principal: -1,718.80

Net result: 4,009.27 – 353.77 – 1,718.80 = 1,936.70 euro.

Example 2

• Earned interest after tax and currency: 994.52
• Defaulted principal: 3,426.99
• Recovered principal: 98.87
• Currency gain/loss on principal: -83.82

Net result: 994.52 – 3,426.99 + 98.87 – 83.82 = -2,417.42 euro.

Note that if you are an investor with defaulted loans in Côte d’Ivoire, it may be necessary to make an additional calculation. The MISCOCI coverage from MYC4 came into your account as a money upload, not a recovery. You will therefore need to adjust the Recovered principal figure by adding the MISCOCI amounts (look under Transfers on your account statement for 2009). In the second example above, the investor received 1,906.50 euro back through this coverage, making the net result  -510.92 euro instead of -2,417.42.

Let me know if you have a good idea for another aspect of investing on MYC4 that you would like to have explained or clarified here on the blog. Remember that you are also always welcome to write to us at info@myc4.com with any questions you may have.

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The art of bidding

Bidding is very simple. You find a business you like. You decide how much money you want to invest. You decide how much interest you want. Done.

If you are investing small amounts and you are more interested in helping businesses in Africa than making money then that is all you need to know. If you also want a chance at getting return on investment then read on.

For the beginning investor

There are some risks. You receive some interest. But sometimes you lose money because people don’t pay back. Sometimes you lose  due to exchange rates. 10% in interest may seem greedy to you, but suppose 5% of the borrowers don’t pay back and you lose 5% on currency exchange. Suddenly 10% isn’t such a high interest rate. Have a look at the maximum interest rate the borrower is willing to accept. If you are bidding way below that then you are unlikely to make money.

Remember the social return. If you were only interested in making money then you probably wouldn’t be here. Funding that solar power project in Uganda or that school in Kenya also gives a social return on investment that is hard to quantify.

Advanced hints and tips

Spread you risk. Invest in a variety of different businesses in different industries from different providers in different countries.

Think about currency. If the local currency of your loan loses value relative to the Euro you will get less back than you expect. If the Euro weakens you can get more back. The amount that currency fluctuates depends on a lot of parameters that we don’t understand. Historically some countries have weaker currencies than others, so you might want to ask for a higher interest rate in those countries.

Check collateral & security. Some loans are unsecured. Others have land or a car or other things as security. In general the better the security, the more likely you are to get your money back.  But even with security there are risks. The partners will make all reasonable efforts to go after the security if the borrower doesn’t pay, but it can be a long process if they have to go through the courts.

Partners are the key. While you are lending money to a specific business, that loan is managed by a MYC4 partner.  The partner does a thorough evaluation of the borrower and the partner collects the repayments. We rate our partners with a five star rating system. The more stars the better the partner’s track record and the stronger the alignment of the partner’s interests with your interests.

Partner fees are important. Partners earn fees in two ways – when the loan is disbursed and as the loan pays back. The partners who earn most of their fees on repayments are obviously more motivated to ensure the loans pay back. You can see the partner fees by clicking on a loan and then looking at ‘costs for the business’.

Partners share in the risk. Most Partners have now agreed cover a portion of loan defaults through risk sharing agreements. You can click on the star rating next to the partner name to see what portion the partner is committed to cover and what level of security they have put up as a guarantee. But remember, even loans that are 100% covered by risk sharing agreements still have a risk for the investor if the partner cannot or will not honor the risk sharing agreement. And, Risk sharing agreements don’t cover currency risk.

Avoid idle money. Money you invest in a loan earns interest. The rest of your money, whether it is in your account or tied up in the bidding process or on its way to or from Africa, doesn’t earn interest.

Use Autobids. If you don’t have the time  to follow your account on a regular basis you can create an autobid. An autobid will ensure your money gets back to work in Africa automatically.

Use Flexible bids. When you create a bid remember to define the minimum interest rate you are willing to accept. This way you can start out high and let the system replace your bid at a lower rate if you are outbid by someone else.

Good luck with your investments. If you have a great tip that I forgot to write about, please add it as a comment to this blog.

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