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Update on KEEF

Keef

MYC4 have previously highlighted the challenges currently facing KEEF. We had also shared the progress in addressing these challenges. On our blog of 5th November 2014, we highlighted that KEEF was to pay off the arrears, and be allowed to continue fund raising on the platform up to an agreed limit. The fact that this agreement did not materialize has caused a lot of anxiety, panic, and ill feeling among the entire MYC4 fraternity. Key to KEEF’s turnaround strategy was obtaining a loan from a bank in Kenya (which has now already disbursed to KEEF), and using the funds to on-lend to their clients that had pending loan demands. KEEF was to utilize the funds to repay the loan arrears on MYC4; and then fund raise on MYC4 up to the agreed limit. The delay in KEEF making the repayments means that with time, most of KEEF’s loans have begun defaulting on MYC4.

Daniel Kimani (KEEF MD) (Left) Titus Kuria (MYC4 MD) (Right)

Daniel Kimani (KEEF MD) (Left) Titus Kuria (MYC4 MD) (Right)

There have arisen divisions in the Board of Trustees at KEEF on the best way forward for KEEF. The Managing Director of KEEF had confirmed in two separate meetings in September and November, his willingness to regularize the KEEF portfolio on MYC4: However, some board members have come up with a strong dissenting voice. The board intrigues have occasioned a costly delay to both KEEF and MYC4 fraternity. We have now called on KEEF to utilize the risk guarantee funds to pay off the defaulting loans. We have also written to KEEF to fast track repayments to MYC4; giving the positive effects of leveraging on the MYC4 platform by using the bank loan to kill many birds with one stone. Discussions are ongoing, and we have our CEO, Mads Kjaer in Nairobi this week to help steer the discussions towards action on the best possible solution. MYC4 still reserves the right to legal action and other adverse courses of actions, but our utmost hope is that these will not be necessary.

One key positive outcome of the efforts by KEEF is that the borrower groups remained intact and cohesive.

KEEF borrower Rose.

KEEF borrower Rose.

This is absolutely critical for an organization that uses the co-guarantee methodology to raise funds. KEEF has had to make concessions with the borrowers including temporary waiver of co-guarantee for groups affected by fraud; waiving the fees that the groups pay to KEEF; repayments are not paid into KEEF accounts but are remaining within the groups as part of short-term cash advances to the group (usually repaid within a month). Promise of subsequent loans is a key motivator for microfinance clients to pay their loans, and several borrowers have held onto repayments as they wait resumption of loan disbursements (KEEF PAR 30 is now over 40%). All these factors have a contributory factor to non-remission by KEEF of repayments received from borrowers.

Another positive outcome of efforts by KEEF is that majority of the staff that were not even remotely implicated in the fraud have remained intact. The effect of this is that the key component in ensuring maximum collectivity of the KEEF portfolio has been retained. We thus hope that the current hurdles that KEEF is facing can be overcome and KEEF shall resume its operations. The magnitude of the fraud has now been quantified at about 31,000 Euros: Whereas the amount is significant for an institution of KEEF’s size, it is not sufficient to affect the going concern of the institution.

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

The 3rd quarter of the year marked the 3rd 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 3rd 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

Slide1

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 30th 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.

Slide2

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).

Slide3

 

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

Slide4

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

 

World AIDS Day

If you’re reading this…Congratulations, you’re alive. If that’s not something to smile about, then I don’t know what is.

As you may well know, MYC4’s mission is to raise capital for African entrepreneurs via an online marketplace and become a significant tool in the fight to end extreme poverty. To eradicate extreme hunger and poverty is goal 1 of the Millennium Development Goals. Speaking of Millennium Development Goals, today is World Aids Day. To combat HIV/AIDS, malaria, and other diseases is goal 6 of the Millennium Development Goals.

World-AIDS-Day-2014-3

World AIDS Day is a day dedicated to commemorate those who have passed on and to raise awareness about AIDS and the global spread of the HIV virus. World AIDS Day (WAD) is about increasing awareness, fighting stigma, improving education, mobilising resources and raising funds for the global response to HIV and AIDS.

Raising awareness of HIV is crucial to get to zero new HIV infections. A red AIDS awareness ribbon is worn around World AIDS Day which is a symbol of awareness, support and remembrance of those affected by HIV and AIDS.

In Africa, new cases of HIV infections declined by more than 50 per cent between 2005 and 2013, as a result of expanding the access of millions of pregnant women living with HIV to services for the prevention of mother-to-child transmission. These services include lifelong HIV treatment that markedly reduces the transmission of the virus to babies and keeps their mothers alive and well, but disparity in access to treatment is hampering progress towards reaching a global goal of reducing new infections, The United Nations Children’s Fund (UNICEF) said on 28th November, ahead of World AIDS Day.

Treatment and prevention has come a long way since the disease was first discovered, and new infections have fallen but aids agencies urges more investment to facilitate access to treatment.

 

Milango

Milango microfinance is experiencing challenges that have kept the provider from the MYC4 platform for under 4 months. However, our interactions so far indicate that the provider is ready to commence repayments for the MYC4 loans and is eager to return to the MYC4 platform on completion.

We were made aware of the existence of conflicts between management and the Board at Milango. Management and Board disagreed on the direction of the company and the shareholders resorted to settle the dispute in court. As a result, most borrowers are holding back on their repayments and taking advantage of the clear lack of management oversight.

Milango borrower

As a business strategy, Milango relies heavily on group lending methodology; a strategy that is preferred due to its low default rates, compared to the individual lending approach. In group lending borrowers who are financially challenged form a group and pool their resources, borrowed or otherwise, into their individual and/or group-owned business. However, sometimes group lending methodology makes a business vulnerable when it faces an obstacle in normal operations because as disbursements falter so do repayments from borrowers. The model is promoted by group pressure and succinct management practices.

So far, Milango has submitted payments of approximately 2665 Euros. However this amount will not reflect in the investor accounts until all repayments that have fallen due, are cleared.

Our recent interactions with the Provider also reveal that Milango is restructuring in order to build an efficient business. They are reconciling shareholders to hasten the process of normalizing operations. They are also incorporating other shareholder functions into the board governance structure. To tie all these down, an Annual General Meeting (AGM) is scheduled for the 6th of December and a decision on a way forward is expected.

Meanwhile, in their quest to normalize operations, shareholders have injected new capital into the business to ensure the survival and growth of the business in the future. These funds will go towards disbursements. Since disbursement of loans bring about repayments, the provider appreciates that the sooner they resume normal business operations, the faster the repayments will begin to trickle in. We are aware of some loans that will soon fall due. Nonetheless, repayment of these loans is expected as agreed and according to schedule.

To this end, Milango is keen to normalize operations on their end, repay MYC4 loans and continue with our partnership. The restructuring of shareholder functions, the AGM for decision-making on the best way forward and injection of capital into the company by shareholders for normal business operations to resume, are key interventions worth counting on.

Default

In the past week, we have had several loans defaulting on MYC4. The defaults are as a result of individual challenges being faced by our providers. We will discuss in this blog the topic of defaults in general and also the factors contributing to current high defaults with specific providers.

MYC4 loans default on attaining 180 days late. This means that they no longer carry interest, but it does not change the claim which investors have to their funds, which will be repaid in the form of recoveries from the Provider. When loans default, providers are required to pay them in full on MYC4 – and then pursue recoveries from the borrowers: In pursuing recoveries of defaulted loans from the borrowers, the providers are free to enforce their rights to recover against collateral provided.

photo m
It is a requirement that providers take full responsibility for the MYC4 portfolio they are handling; and they have all signed 100% Risk Guarantee Agreements against defaults. To ensure that there will be sufficient liquidity to pay for the loans as they default, MYC4 demands that providers hold 20% of outstanding portfolio in liquid assets (Referred to as the Risk Guarantee Fund): industry standard (outer limit) for default rate in the microfinance industry is 2%. In the ordinary course of business, MYC4 loans default at a rate that providers are easily comfortable to pay the defaulted loans without having to dig into the Risk Guarantee Fund.
If the MFI continues activities they are obligated to collect the outstanding funds and pay pack as recoveries to investors via MYC4. If the MFI defaults as an institution MYC4 taps into the 15-20% Guarantee fund and channels these funds back to investors. Providers will normally only stop repaying in case of institutional collapse, whereby investors will only receive the 15-20% back, which the Provider has deposited under the Risk Guarantee agreement.
Many MFI’s go through difficult periods where they manage to restructure and continue operations. MYC4 usually takes a constructive approach and tries to help the MFIs to survive. However, MYC4 does not allow re-scheduling of loans: Thus whereas an MFI may decide to alter/ reschedule repayment agreements with their borrowers, on MYC4 the loans will continue appearing as late on MYC4, even as the repayments are received.
Here is a breakdown of the issues contributing to defaults among the providers and subsequent steps.
KEEFKeef
KEEF was a very well run and performing MFI till the incident with the fraudulent loan officers. MYC4, as well as KEEF, had not seen signals that fraud was imminent. KEEF did the mistake to stop operations for 2 months. This sent the wrong message to the market. One key motivating factor for MFI borrowers to repay loans is the inherent promise of getting subsequent loans: With KEEF not disbursing fresh loans, many borrowers held onto their repayments. MYC4 has been working with KEEF to start up loan activities for the past several months and it finally looks like we shall have success within a fortnight. KEEF has secured a loan from a local bank that will be a catalyst for return to normalcy at the institution.

MtajiMtaji
Due to the sudden stop by our funds transfer service provider, INTL, of operations in Tanzania, MYC4 had to stop activities in this country. Some of our Providers were counting on continued growth and income from handling MYC4 loans and were thus challenged on their cash position by us stopping disbursements. Mtaji therefore had to look elsewhere for loan capital to expand their operations. MYC4 has made a repayment agreement with them by which they commit to paying back their outstanding portfolio in monthly installments over the next 10-12 months. This impacts the repayment pattern to investors but should ensure that all funds are eventually repaid.

An Update on Providers

KEEFKeef
Following the July update on KEEF that included a statement from KEEF CEO, Daniel Kimani, investors have requested for more details on the situation. This blog post intends to answer these questions share with you progress made so far. KEEF momentarily pended normal operations in the collection of repayment and issue of new loans, in order to investigate fraud charges against some of their loan officers. This resulted to slow or no repayments beyond the temporary 2 months’ halt of activities, as it has taken tremendous effort to get the groups back into a steady, monthly repayment pattern.. The team at KEEF is now focused on reactivating borrowers amidst rumors within the industry that the company may be struggling to remain afloat. While such rumors may slow down repayments, the new structures in place are more effective and yet deliberate in flagging anomalies in loan uptake and repayments. ,
The court case against the loan officer suspected to have initiated the fraud has seen several sessions in court. However, the slow pace at which the case is moving encourages us to

A KEEF Borrower

A KEEF Borrower

begin a normalization process rather than get held up by the pending outcome of the case. A key output from the MYC4 and KEEF recent engagements is the decision for KEEF to access credit that will be partially used to pay off the late installments that have accumulated since June. Upon receipt of this funding, KEEF will be able to drop their PAR 30 Days, to zero, and bounce back to offer new loans on the MYC4 platform. This is just one of the many decision areas implemented by KEEF to get the business back on track. We look forward to support KEEF as they re-start normal operations and counter the distrust in industry.

At MYC4, we appreciate that fraud automatically lends our providers to financial and reputational risks, among other risk types. We therefore work very closely with the Provider to establish quick ways back into main stream business. The return of KEEF on MYC4 platform is as a result of joint efforts, cooperation, and transparency by KEEF, MYC4, and our valued investors. We are looking at a two week lead time before KEEF is back on MYC4 platform. When this happens, we shall bank on your support to fund their new loans. The learning picked from this case will be used to improve our Investor Communications to ensure timeliness and speed of information sharing.
Uganda and Tanzania Providers
In June, MYC4 decided to stop lending activities in Uganda and Tanzania to concentrate on the Kenyan market. The Providers in the two countries were disappointed but appreciated the change in MYC4’s strategy for East Africa. Providers such as, Gatsby, Fanikiwa and Tujijenge, in Tanzania, expressed their wish to pay back their outstanding MYC4 loan balance over a period of few months. , Others, like UMF in Uganda, preferred to pay back to MYC4 as the loans matured. A third category, consisting of Mtaji and Tujijenge Uganda, requested for a structured repayment agreement over the next 12 months. Investors will therefore notice their loan repayments coming in at irregular intervals, yet some at later than scheduled. MYC4’s motivation is the commitment to meet all Providers with a solution within their capabilities as long as the full repayment of the outstanding portfolio is assured.
Premier Kenya Limited a new, experienced MYC4 Provider in Kenya22
This summer MYC4 was proud to extend our first wholesale loan to a Kenyan start-up MFI Premier Kenya Ltd. Start-up is, however, not a very precise description, since the team behind Premier is the same that built Micro Africa, a MYC4 Provider since 2008 that has successfully extended 2,639 MYC4 loans to Kenyan entrepreneurs. Since the start of operations in early 2014, Premier has already grown to 11 branch offices and 67 loan officers. They apply state-of-the-art modern technology in their loan methodology and administration, based on the new and highly efficient MAMBU MIS. Due to their fast growth rate, MYC4 and Premier agreed in September 2014, that Premier will also be offering retail loans on the MYC4 platform, the first of which were uploaded and funded within hours on October 13th. A warm welcome to Premier Kenya! We are confident that you will spot many loan opportunities from them going forward.
Loans on the platform
Many investors may have noticed the empty page whenever they visit the MYC4 platform to choose an African entrepreneur to support. This

regrettable situation is a combination of three things:
1. Our old Providers in Uganda and Tanzania stopped offering loans on the platform this summer when MYC4 decided to concentrate activities

in Kenya in order to penetrate the Kenyan market.
2. The process of identifying and screening new Providers in Kenya has to be thorough and precise. This requires additional resources at MYC4 East Africa
3. As there is a temporary surplus of capital on the Platform, loans fund very fast. Since we recently reduced the time for loans to remain open for bid after funding, the loans disappear a few hours after they have been uploaded
As we sign up new Providers in Kenya and more loans get uploaded, this will increase the time of bidding and availability of loans to bid. Until that happens, we request our investors to be patient.
To those investors who have concerns about the inactive fee which is applied to investors after 12 months without any bidding activity, we suggest that they make one bid on a loan (or activate autobid) as this will give them another 12 months window where the fee will not be applied.
New faces at MYC4 East Africa
Mid-October 2014, two new members of staff joined the MYC4 team in Nairobi – both of them with the mission to grow the activity in Kenya in the future: Dickson Momanyi and Julius Kasanga. Both have solid financial backgrounds and they are currently undergoing training in the MYC4 system before they can start supporting our existing Providers and sign on new ones. It is MYC4’s ambition to obtain nationwide coverage in Kenya and to channel loans to both micro- SME- and rural entrepreneurs within the next year.

Recognizing that MYC4 has not been living up to our investors’ and other stakeholders’ expectations when it comes to communication, MYC4 has decided to hire a Communications Officer at our Nairobi office. Caroline Mbugua will be in charge of investor communication; she is a communications graduate from Daystar University and will be updating the investors on the providers’ performance as well as other news items pertaining MYC4.  MYC4 appreciates the support received from investors thus the need to prioritize communication.

Dickson, Carol and Julius at the MYC4 Nairobi office

Dickson, Caroline and Julius at the MYC4 Nairobi office

September Update.

Below is an update of providers in the month of September.

Kenya Providers
Kenya providers paid a total of 67,271 Euros in the month of September, below is a break-down of which provider paid what and the general overview of their performance;

 

 

KEEFMilangoSisdoJubilant

 

 

 

 

 

 

 

KEEF –  is MYC4’s biggest provider with a significant share of our outstanding portfolio. We will update more specifically on the situation in a separate blog. In a nutshell, at the moment they are experiencing problems due to fraud by staff, and subsequent immediate action taken to address the fraud: The suspension of activity for a certain period to facilitate investigations meant that some repayments were skipped. We however remain optimistic that the situation will turn around – group meetings have now resumed.

Milango – This month saw Milango pay approximately 5,000 Euros. MYC4 suspended further uploads from them until they increase capitalization of the institution, and address issues. They are having disputes among key shareholders that are now in court of law. The OLB still stands at € 166,191.65 and the par 30 is at 79.17%. They have two grouped amounts totaling to about 15,000 Euros for which we are expecting payment.

SISDO -  is in the process of reconciling their records with MYC4s ; but in the meantime they have grouped the pay-off amount to clear their portfolio. This is expected to be received in October. SISDO management team has changed from the time of our initial engagement, and we hope to have positive discussions on re- engaging with MYC4.

YEHU – repaid a total of 60,494 Euros in the month of September, and has continued to upload loans every week. YEHU has potential to grow with MYC4 and MYC4 is therefore encouraging her to upload more on the platform. The current OLB is € 327,115.34 and has no loans on Par 30 and above.

Jubilant – so far has paid a total of 1,771 Euros and continues to pay on weekly basis. The pilot review for Jubilant has been done and they will have their limit increased. Their current OLB is €€ 80,608.66 and they currently have no loans on Par 30 and above.

Premier Kenya – MYC4 East Africa already had the wholesale loan disbursed to Premier Kenya for on-lending to their borrowers. We are pleased to have Premier Kenya on board now as a provider for the retail lending. Premier Kenya is growing well as it has good governance, good structures, and adequate capitalization.

Tanzania Providers

Tanzania providers repaid as depicted below.

 

 

MtajifanikiwaTanzania

 

 

 

 

 

 

 

 

 

Mtaji – repaid a total of 8,139.91 Euros in the month of September. The current OLB is € 80,958.26 and the par 30 still remains at 100%. .

Fanikiwa – repaid their entire portfolio to MYC4 in this month and MYC4 wishes them all the best in their endeavors.

Tujijenge Tanzania – repaid a total of 42,537.69 Euros in the month and they are in the process of reconciling their accounts so that they pay-off the entire amount by the end of October. The OLB currently stands € 49,071.90 with a par 30 of 53%.

Uganda Providers

Uganda providers repaid a total of 23,350.58 Euros in the month, below is a breakdown;

 

 

TUGumf

 

 

 

 

 

 

 

 

 

Tujijenge Uganda – repaid a total of 8,104.41 in the month and is expected to continue paying every week until the portfolio is fully repaid. The current OLB currently stands at € € 65,297.37 and par 30 is 70%

Uganda Microcredit Foundation - repaid a total of 15,246.17 Euros in the month. Their current OLB is € 78,568.39 and they have no loans on par 30 and above. A grouped amount of around 25,000 Euros was grouped and is expected in the month of October.

 

 

 

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