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Spot Checks Q1 2013

June 12, 2013 by Titus Kuria

In the first quarter of 2013 we carried out spot checks on four of our partners. These were Gatsby Microfinance (Uganda), Tujijenge Uganda, Micro Kenya and KEEF. The partners had scores ranging from 4 to 8 out of 10. The spot check score forms part of the parameters that are used in overall risk rating on MYC4 (commonly referred to on MYC4 as the star rating, due to the five stars displayed on each provider profile). Subsequent action points are given for each provider, including measures such as pausing of loan uploads until certain issues are adequately addressed.

The spot check is a tool used by MYC4 bi-annually to verify that the data captured on MYC4 is accurate; and that the borrowers not only exist but are carrying out the businesses as detailed on the platform. Another objectives of the spot checks is to verify that the providers are carrying out best practice as laid down in their policies (MYC4 only engages with providers that demonstrate, during due diligence process, that they have sound risk management policies). Many will agree that, it is one thing to have good risk policies in the finest print, but consistently implementing the same requires a multiplicity of factors – including management commitment, staff motivation & ownership, adequate training, and a good incentive scheme. Thus from the aforementioned, there are two principal aspects: Adherence to MYC4 model; and implementation of risk management practices.

Over a period of time since 2010, we have seen tremendous improvement in adhering to best practice. Many of our partners have incorporated aspects that were not part of their routine into their overall risk management structures. Areas that have seen good improvements include loan assessment, collateral perfection, and documentation. We have also managed to enforce more strictly, adherence to the MYC4 model.

The MYC4 model basically requires that borrowers access the loan funds at exactly similar terms and conditions as stated on the MYC4 platform. Thus, for example, loan for Odeke Julius is lent on MYC4 at an effective interest rate (EIR) of 41.87% for 12 months with collateral of a motor vehicle: We expect during the spot check to find a properly appraised loan at same terms and with collateral adequately perfected. Repayments received from borrowers should also be entered on MYC4 system as and when received from the borrowers. Suffice to say that loan status on MYC4 should mirror the provider’s information system with regard to each loan on MYC4. The withholding tax must also be remitted to the tax authorities.

The grading of the four institutions was divided as follows
1. Adherence to MYC4 model
2. Implementation of sound risk management practices
i. Completeness of loan files
ii. Perfection of collateral
iii. Loan assessment and documentation
iv. Processing of loan repayments
v. Client visits

Gatsby Microfinance holds our biggest portfolio per provider (about 23% of our portfolio). It was thus refreshing and comforting that they achieved the highest score from the spot checks, 8 out of 10. Among the highlights were that they had adequate loan assessment and approval mechanisms which were well documented; collateral perfection was sufficiently and consistently done; business visits revealed businesses with capacity to meet loan obligations; and there was strong adherence to MYC4 model with regard to disbursement amounts, interest charged, borrower awareness and consent of MYC4. The concerns noted included that there was a gap in repayment processing on MYC4 resulting in loans being cleared in GMFL books whereas small balances were outstanding on MYC4. Other concerns were that MYC4 currently finances a big part of GMFL portfolio (30%) and as such GMFL is required to urgently diversify funding sources.

Tujijenge Uganda (TUG) holds about 4% of overall MYC4 portfolio, while MYC4 holds over 40% of its portfolio. About 99% of its portfolio comprises of short term group loans. The perception of positive impact among its borrowers is very high – as several of the borrowers visited (who can be classified as bottom of the pyramid) attributed their elevated level of income to TUG. TUG was found to have good assessment of groups; had good documentation; collateral mostly was group co-guarantee and the necessary guarantees were in place. The key concern with TUG was on adherence to MYC4 model, whereby it was established that there was quite a high degree of non-compliance (TUG mostly pre-funds the loans it uploads on MYC4 at predetermined interest rates). This informed their low score of 4 out of 10. Other concerns noted were on documentation especially of the approval process and referencing/ file retrieval. TUG has been paused from further uploads so as to address adherence to MYC4 model and also give way forward on diversification of loan funding.

KEEF (Kenya Entrepreneurship Empowerment Foundation) holds a significant part of overall MYC4 portfolio, about 17%, and the converse is even more significant with MYC4 financing about 27% of KEEF portfolio. KEEF has demonstrated commitment to following the MYC4 model, as there was no issue of prefunding that existed previously. Repayments processing was found not to be accurate and with room for improvement. Loan assessment was not well captured in the documentation on file. Collateral perfection was satisfactory. KEEF generally has sound risk management principles and is complying with the MYC4 model. The omissions in loan documentation and lack of consistency in repayment processing have informed the average score KEEF scored 6 out of 10. Further growth of KEEF on MYC4 will be limited to ensure that MYC4 remains below 30% of overall KEEF portfolio.

Micro Kenya holds about 15% of MYC4 portfolio, while MYC4 holds below 5% of Micro Kenya portfolio. Micro Kenya is part of the Micro Africa group that has made a strategic decision to exit from MYC4 platform, after acquisition by Letshego of Botswana. Micro Kenya is to a large extent uploading freshly approved loans as per our pre-funding policy. However, the requirement for compliance is 100%, which has been violated. Over 90% of the loans funded through MYC4 have been through the group lending methodology. The loan appraisal and documentation were well documented. However, the loan documentation was not consistently and completely done as several loans did not have critical loan documents such as loan agreements. Compliance with MYC4 policies on other areas than pre-funding, was noted to be good.

The next round of spot checks will be carried out in this 2nd quarter on our partners in Tanzania.

Posted in Analysis, Credit Operations | Tagged Africa, Business, development, Gatsby, Growth, Growth Africa, investments, KEEF, loan, MFIs, Micro Africa Ltd, Microfinance, MYC4, Nairobi, partner processes, Uganda | Leave a Comment »

Microinsurance on the roll

June 10, 2013 by Rasmus Hansen

A few weeks ago, a huge chunk of the vibrant Kantamanto Market in Accra, burned completely to the ground – according to the media, luckily no one died. Having been to Kantamanto myself many times, knowing several of the traders by name, I knew I had to get down to see with my own eyes what had happened. Traders lost their shops and all of their items to sell. What’s clear from the picture below, is that literally everything burned to the ground.

Kantamanto Market a few days after the fire

However, this is not a tale of sadness and suffering, but that of progress.

When I visited the place the first time a few days after the fire, everyone’s mood seemed extremely tense. People were clearly and understandably affected by the incidence. Especially the police’s presence and their love for teargas usage made everyone very jumpy – as can also be seen on the picture above.

Kantamanto only two weeks later

Nevertheless, when I visited again only shortly after, nearly all the shops had been put up again! Of course not at all to the same extent as prior to the fire, but everyone could be found at their original location on that compact plot of land. I could easily locate my ‘sunglasses guy’, my ‘hat guy’, and my ‘shirt guy’, and shop for new (old) items. Their shops had burned, but they were back in the same spot selling their stuff.

What surprised me was how fast they had all been able to get back in business. How was this possible?

I did a little research, and found part of the explanation: Microinsurance.

“Vanguard Assurance has paid GH₡ 45,000 (~ EUR 17,000) as claims to 32 traders who lost their goods in a fire outbreak that affected the Kantamanto market. The traders, who are clients of Adehyeman Savings and Loans Limited, were covered by an insurance component of 0.6 per cent of whatever amounts they took as loans.” …

“Stanbic Bank has written off about GH₡ 150,000 (~ EUR 57,000) loans owed by 14 victims of the Kantamanto Market fire outbreak in Accra. The traders who are customers of the Stanbic Small and Medium Enterprises (SMEs) Quick Loans were also given GH¢1,000 each for their upkeep. At a ceremony in Accra, the Chief Executive of Stanbic Bank, Mr Alhassan Andani, said the traders were covered by an insurance component of 0.756 per cent of the loan that catered for misfortunes such as flood and fire.” …

“Some victims of the recent Kantamanto fire outbreak who took loans from Advans Ghana Savings and Loans have been financially supported with a first phase of GH¢ 115,000 (~ EUR 44,000) as insurance cover from Star Microinsurance through its MicroEnsure policy. Apart from the payment of the outstanding loans, all individuals who were affected by the fire were given a benefit token of GH¢200 free of charge.”

This of course might not be the entire explanation for the quick (and still ongoing) rebuilding, but it’s definitely part of it. So you better believe in microinsurance, for it is already here and it is already showing its worth.

Let’s advocate for a greater outreach of mandatory microinsurance and for a greater coverage – even for the smallest of micro businesses.

Posted in News from Africa | Tagged Accra, Ghana, insurance, Kantamanto, Micro insurance, microinsurance, Stanbic Bank, Star Microinsurance, Vanguard Assurance | Leave a Comment »

Where the white highland is green

June 5, 2013 by Ole Vestergaard

Solomon, branch manager in Limuru for Micro Africa. Kevin from MYC4s office in Nairobi and MYC4 co-founder Mads Kjær

Solomon, branch manager in Limuru for Micro Africa. Kevin from MYC4s office in Nairobi and MYC4 CEO and co-founder Mads Kjær

We have fields of tea and coffee on both sides of the road, the hilly landscape is a dream, it’s lush and green, but it’s called the ”white highland”. The term derives from the British and other Europeans who settled here in large numbers establishing tea and coffee plantations during the colonial period. We are on our way to Limuru, we being MYC4 CEO and co-founder Mads Kjær, his wife Hanne, Kevin from the office in Nairobi and me.

We are going to visit a couple of borrowers and to have a chat with branch manager Solomon from Micro Africa’s office in Limuru, a town 30 miles from Nairobi and with all the micro finance institutions present. This branch has 880 active clients and half a million Euro in the loan book. Solomon tells us about a relatively new type of loan, solar loans. Solar energy has a huge potential not only in Kenya but in most parts of Africa, but you need money to invest in products such as solar lamps and solar panels. In many areas kerosene is still the main source of energy, but it’s expensive and potentially dangerous. God knows how many children have been burnt on that account. To get a solar loan with Micro Africa you have to have another loan to begin with. The loans are still mainly meant to motivate existing good borrowers.

Solomon is an optimistic branch manager, business is running smoothly, the biggest challenge being borrowers who use a loan to cover for another loan – and they also have to say no to 1-2 hopeful people every day if they are not transparent enough or can’t provide any security. There are still a lot of people out there who cannot get a loan.

We wish Solomon good luck, and together with two loan officers we head for the first client, Wilfred Kimichi Thungu, who has a big house and a nice garden outside Limuru. Wilfred is into yoghurt. He has his own brand, Wincy Yoghurt. He keeps it simple with two flavors, vanilla and strawberry. The milk comes from a dairy farm not far away, and Wilfred hires people with the skills to make the yoghurt. They produce when the demand is there, typically twice a week. He gets 1,5 Euro per liter out of which one third is profit for him. It is still a very small business, vulnerable too, but Wilfred is determined to take it higher. We’re standing in his kitchen, he’s not used to the fuss and the interest we take in him with all our questions. Right now his biggest wish is to be able to pasteurize his products, but he hasn’t got the money for that. He has a loan for 465 Euro but wanted more.

Wilfred in his kitchen where he makes the yoghurt.

- Money is the problem, and all the bureaucracy to get started. Transportation can also be a challenge. It costs to have the milk brought here and to distribute the yoghurt. I do that by matatu (minibus), but up until recently I put it on my bike and pedaled my way around to the 12 customers in Limuru. We make 8-900 liter every month, but we could sell much more, Wilfred says.

Which reminds me of a visit I made earlier to a dairy farm in Karen outside Nairobi. The place and its products are called Eldoville. Both Wincy Yoghurt and Eldoville are good examples of how taste has changed in Kenya and of how more people can afford relatively expensive milk products such as cheese. Lucy Karuga who runs Eldoville told me that a few years back most Kenyans found cheese to taste like soap but that soon it will be a widespread household product (which is fine with me as long as ugali doesn’t becomes a regular guest in my fridge).

We leave Wilfred, impressed by his little business and his determination, but Mads Kjær stresses his vulnerability. – It would help a lot if he had a steady demand, he’s too dependent on random demand, he says. Let’s hope he makes it.

Our last stop today is at Leah Njeri Kimani’s place, a small farm. Leah borrowed 650 Euro to buy 300 chicks plus feed. It’s her first loan with Micro Africa and MYC4, she had a loan with Equity Bank before, but the interest was too high. For the money she bought three different kinds of chicks to see which is best and produces most eggs, which she sells on the market. She has a total of 900 chicks, three cows and a clothes shop not far away. – I’m a business woman, she says. I think she likes saying that, it sounds of more than being a farmer. Suddenly a man shows up, he doesn’t look like a farmer at all. It’s Leah’s husband. I’m a pastor, he says shaking our hands. They show us around the modest homestead, every inch is being used for a purpose. Land is hard and expensive to come by, and when it’s passed down from generation to generation the plots get smaller and smaller for each member of the family. But that’s another story, and certainly the business woman and the pastor seem pleased with what they have.

Leah Njeri Kimani:I’m a business woman

We say goodbye and leave the couple and the peaceful countryside having once again met great people who make it all worthwhile.

Posted in Borrower Testimonials | Tagged Agriculture, borrowers, Dairy, Kenya, Limuru, Micro Africa Ltd, micro finance institutions, Microfinane, Solar, Solar loans, Yoghurt | 1 Comment »

The MYC4 Annual Report 2012 is now available

June 3, 2013 by Githa Kurdahl

MYC4′s Annual Report for 2012 has now been finalised. It is available on the MYC4 platform together with the reports from previous years – find it under downloads here.

Overall, 2012 was a good year for MYC4 in terms of both volume and quality: the outstanding loan portfolio grew from €1.2 million in January to €2.2 million in December and the portfolio at risk above 30 days (PAR30) was kept below 5 % throughout the year.

As expected, MYC4 came out of 2012 with a loss of DKK 2.442.431. This represents a significant improvement since 2010 and 2011. The loss has been funded by new share subscriptions, primarily by the majority shareholder The Way Forward ApS but also from other shareholders. The accumulated losses over the years is seen as an investment by the Shareholders in building a profitable and sustainable business that can serve its stakeholders with fair and transparent financial services.

For 2013 we expect a loss of the same size and The Way Forward ApS has also offered to fund the budgeted cash needs. We continue our efforts to find new Shareholders to fund initiatives which can take the business the next step and grow it to critical mass.

MYC4 Annual Report 2012, page 15

The graph below shows the development of our Outstanding Loan Balance (OLB) and operating profit/loss from 2007 to 2012.

Posted in News | Tagged Annual Report, Business, Financials, loan portfolio, MYC4, Profit & Loss | 1 Comment »

May Provider Update

May 29, 2013 by Githa Kurdahl

The fifth month of the year has nearly come to an end which means that we have our fifth monthly provider update ready for you. Read highlights about selected providers below.

Micro Africa Ltd

It has been one month since the exit with Micro Africa Ltd (MAL) was announced here on the blog. In a letter to MYC4 investors, MAL CEO Tim Carson expressed gratitude to the MYC4 community and urged investors to continue lending through MYC4 to finance “the thousands of small businesses in Africa that would find it difficult to fund their activities without the support of MyC4″. The exit is so far progressing according to plan: in May alone, MAL’s portfolio on MYC4 has been reduced by more than €90,000 through scheduled loan repayments. MAL’s outstanding loan balance (OLB) now stands at around €550,000 in Kenya, Uganda, and Rwanda with a PAR30 of 0 %.

Yehu Microfinance Trust

When we last updated on Yehu, we could share the news that our pilot evaluation had been successfully completed and that things were generally looking very good. A key thing missing in this partnership has, however, been volume which now seems to be a problem of the past. In the last two months, Yehu has picked up its activity on the platform and new loans are coming through almost every day. With an average loan size of €350 – currently the smallest on the platform – Yehu’s portfolio is nevertheless growing very slowly. The outstanding loan balance (OLB) is up from €65,000 in March to €107,000 in 394 loans today. More than 88 % of these loans are to women.

KEEF

With the exit of Micro Africa, KEEF has become our largest provider in Kenya in terms of volume. Its outstanding loan balance (OLB) on the platform is close to €370,000 in 1,065 loans with a PAR30 (portfolio at risk above 30 days) below 1 %. KEEF has expressed a commitment to further improve its portfolio quality by obtaining a PAR30 of 0 %. While the annual review revealed that KEEF has the institutional capacity to build an even larger portfolio on the platform, MYC4 funding already constitutes close to 30 % of KEEF’s total loan portfolio. It is therefore not realistic that we will see a big increase in the activity of KEEF in the short to medium term.

Mtaji Credit Facility Ltd

Mtaji has been a provider on the platform for 3 months now. So far, Mtaji has disbursed €45,000 and has 39 active loans. Another 7 loans are awaiting disbursement. Loans from Mtaji are coming through on the platform regularly and the portfolio is growing in accordance with expectations. Repayments have been received in a timely manner on a weekly basis since the end of April, a total of €2,120, and the PAR30 is kept at 0 %. All in all, Mtaji has had a very strong start on the platform. It will be interesting to follow Mtaji over the next three months as we approach the pilot evaluation.

BELITA

It has been a while now since BELITA started having performance problems on the platform and therefore was paused from uploading new loans. On the positive side, repayments have been coming through every other week and the outstanding portfolio has been reduced significantly without any loans defaulting. A total of €22,600 remains outstanding in 67 loans. BELITA is working hard on turning around the institution, and we are following this process closely. We are hoping to be able to welcome back new loans from BELITA once the quality of the existing portfolio has been improved and the causes of the current troubles have been sufficiently addressed.

PRC

Quite a lot has happened with the PRC portfolio in the month of May. Of its remaining outstanding loan balance (OLB) of €30,700 as much as 97 % was defaulted. This has meant that PRC’s default rate increased from 3.71 % at the end of April to 9.84 % today. Total defaulted principal for PRC thereby amounts to €47,972 in 19 loans with €188 recovered so far. Only three loans remain active and PRC’s total OLB is €864. While we have been hoping to see PRC turn things around, we are now in the unfortunate position that we could be facing a case of institutional default. We continue to be in frequent contact with PRC’s CEO Felix Quansar who is in the process of liquidating bonds used as PRC’s risk sharing fund. He has also confirmed that the pending repayments registered on the platform should be settled as soon as possible. We realise that investors will be interested in knowing more details about PRC and we will therefore make sure to write a separate post here on the blog in the next 1-2 weeks similar to the update we made in December.

If you are interested in following MYC4 in more detail, check out our brand new portfolio report here. You can also get frequent updates on Twitter, Facebook, and other social media. We will be back with the next provider update in one month’s time.

Posted in News | Tagged BELITA, KEEF, Micro Africa Ltd, Mtaji Credit Facility Ltd, MYC4, portfolio, PRC, Providers, Yehu Microfinance Trust | 2 Comments »

Say yes to the children

May 27, 2013 by Sally Imoh

As I walk near our neighbourhood schools, the sound of giggling and song fills the air. He’s got the Whole World in His Hands … they sing along. The happiness in their voices is so evident you can feel it. This particular song reminds me of a day when I was 9 years old, as we marched to the city stadium to mark the first African Child’s Day ever on June 16th 1991. Back then I understood so little about the meaning of this day. Perhaps I enjoyed the singing bit and making new friends too much to know that this day was about more than song and dance? As I grew older, I came to realise and appreciate the importance of this day.

The Day of the African Child (DAC) is a day set forth to commemorate the Soweto Uprising on 16th of June 1976 when 10-20,000 South African students marched to demonstrate against apartheid inspired education in their schools. While protesting, they were shot at by the police and several students died, the most well-known being 13-year-old Hector Pieterson; later, more than a hundred people were killed and injured as they protested the opening of fire on children.

The day has been taken by many organisations as a day to fight for the rights of children. When I was a child marching to the city stadium, I did not realise how fortunate I was to have been in school and to have parents who cared enough for me to take me to school, to hospital when I got sick, and even for recreation activities. I did not understand that there were children who were being forced into early marriages in many parts of Africa so that the parents can enrich themselves with dowry money, children as young as nine years old. I did not understand that there were children whose parents did not take them to school because they were girls, or who were forced to take care of their younger siblings and do hard chores like fetching water from the stream with jerrycans twice their weight and almost their height. I did not understand that just because I had my meals, not every child in Africa could get a meal a day; that to some, clothing was a luxury they could not afford.

Prize giving day at Ainsworth Street primary School

Prize giving day at my school, Ainsworth Street Primary School

This Year’s Theme

The DAC 2013 presents an opportunity for organisations, NGOs, governments and individuals to take part in the solutions to the obstacles of African child development. In 2013, the general objective of the DAC will be to draw attention to the need of eliminating harmful social and cultural practices affecting children today. Everyone is welcome to participate, from children, teachers, parents, international bodies, governments, and the NGO community. This is a step in the right direction of eliminating oppression on the African child. The African child has also come a long way. The situation is not as it was in 1991.

Not Left Behind

At MYC4, we also help fight these injustices to the children. MYC4 is committed to the Ten UN Global Compact Principles in which principle number five is on effective abolition of child labour. One way of doing this is by empowering businesses. These businesses are owned by widows, single parents, even married people. Once these people (parents) are empowered by loans, they are able to expand their businesses, buy stock, and grow. These enable them earn an income, hence these parents are able to take their children to school, feed and clothe them. The children are not forced to work so as to supplement their parents’ income; they are allowed to be children. Some of these businesses have employed people hence also empowering others in the process. MYC4 empowers to empower.

When I hear a child’s laughter, so rich and full of happiness, see them play on the play grounds, their beautiful young eyes full of dreams and hope, I am touched. I know there is hope after all. When I see them sing happily or run outside on a Christmas day to show their friends their new “Christmas dresses”, my heart is filled with joy. There is still a long way to winning the fight, but the African child has come a long way. Let us keep on fighting and not tire. When a child smiles, the earth smiles.

See the Hope in their Eyes

Posted in News from Africa, Opinion | Tagged African child, Ainsworth Street Primary school, Child rights, DAC, MYC4, society, Soweto Uprising, The Day of the African child, United Nations Global Compact Principles | 1 Comment »

Do you get what you need for your likes?

May 22, 2013 by Karl Kristian K. Kjær

Being a small company with limited budgets for advertising, we think it’s very important to keep all interested investors and friends of MYC4 up to date with what’s going on behind the curtain. To give our investors a versatile picture of MYC4, and at the same time don’t overload with unnecessary information, we give the followers different opportunities to follow where they think it’s interesting. Below you will find our social media channels, and what you get.

Facebook

Facebook is currently our biggest communication platform with 1400+ likes. Our Facebook profile is managed from our Copenhagen office and is used to inform users and fans of MYC4 about general information about Africa with a financial twist, announcements, interesting blog post, milestones and current loans on MYC4.

Twitter

To differentiate our tweets from our Facebook updates, we have chosen to set up a Twitter account which is managed from our Nairobi office in Kenya. These tweets are mainly focused on our provider and borrower updates and the everyday life at the office.

If you are already on Twitter you might also find these two profiles worth a follow; the first is our CEO, Mads Kjaer. Here you will get updates from his business trips and participation in different events, latest The World Economic Forum in Cape Town.

The second is our Operations Manager, Githa Kurdahl. Here you will get insights in the daily management and a good opportunity to dig deeper into MYC4 and learn about our key challenges and opportunities.

Instagram

The best pictures of our borrowers who currently are or have been active on MYC4 are handpicked by the staff and shared on Instagram. You can use the first hash tag (#) on each picture to track the loan on MYC4; all you have to do is copy the link http://www.myc4.com/Invest/Loans/View/ and add the first hash tag with five digits to the link (essentially the loan id).

We are slowly building up our Linkedin profile with the approach that it can be used to generate new impact investors and raise more capital to be invested in African entrepreneurs. It’s also a good way to show your professional network that you support MYC4 on our way to build a sustainable Africa.

Our key challenge with our social media channels is in general to build a bigger fan base as well as satisfy current users with relevant information about MYC4 and Africa.

We are always open for what you as an investor think is relevant information to you and where you would like some more – so please share/like/comment/follow/tweet/retweet to contact us.