The spot checks for the first half of this year were conducted between May and June and the new scores have been updated to the platform today. You can read more about the scores on the MYC4 Risk Rating Page and you may notice that the star rating for certain providers has changed.
As the MYC4 Credit Operations Manager, it has been a busy time for me moving from one provider to the next in quick succession. All partners have different systems in terms of MIS, file arrangement, appraisal methodology, documents storage et cetera. In addition to this, different countries have different legal requirements on collateral perfection. The person conducting the spot checks is thus required to adapt quickly to the various systems and be efficient on time. This being the second time for me to conduct the spot checks, the process was slightly smoother than the first time of asking.
The exercise assumed the format of one and half days in office checking selected files for consistency, and the next one and half days visiting borrowers in their businesses. It is always an exciting time visiting the actual beneficiaries of the funds through MYC4 platform. From client visits one gets independent confirmation that the funds actually reached the borrowers and also one sees firsthand the impact of the funding. The appreciation among the beneficiaries and impact of the funding is motivation for us staff to give our best to MYC4 to ensure its operational success – and to keep investing (good to note that all MYC4 staff are voluntary and active investors on the platform).
The following key areas were assessed:
- Client files; loan contract, interest rate, amount, MYC4 consent form, disbursement date, forms and signatures, credit committee approval, maps, ID, contact details, photo, etc.
- Security/Collateral; legal perfection, documents, storage, signatures, third party guarantees, etc.
- Repayments; timely repayment processing, receipts, arrears, rescheduling, recoveries, etc.
- Visits; existence of borrower, business performance, repayment difficulties, purpose of loan, disbursement amount, interest, payback period, awareness of MYC4, etc.
The spot checks also include a general evaluation of important areas such as cash handling, separation of duties, staff motivation and turnover, compliance with risk sharing agreements, payment of withholding tax, and delinquency management.
The main findings from the Q2/Q3 spot checks included both positive and negative observations. Among the key positive observations were:
- There was overall high adherence to the MYC4 business model
- All businesses visited exhibited good health and ability to meet obligations
- Security perfection done well by most partners
- Sufficiency of loan documents in use by most partners
- Adequate and consistent loan appraisal in most institutions
- Good separation of functions and duties in all institutions
- Withholding tax deducted from investors duly remitted to the government in all institutions.
Among the issues identified included:
- Some partners’ loan appraisal and assessment were found to be insufficient in certain areas.
- Collateral perfection in some institutions was not consistently done in the right manner.
- Lack of adequate collateral coverage in a couple of cases.
- Loan documentation and storage not done to expected standards.
- Delinquency management in some institutions needed a more professional approach. Loan follow-up to be tightened, responsibility for loan quality given to an officer but with various levels of escalation within the organisation, and follow-up to be documented.
Overall, there was minimal improvement from the previous spot check which has been constructively highlighted to each provider in detail. This resulted in some partners retaining their previous scores while others had their score go down. The issues identified were almost similar to last time. Key among the unchanged issues were lack of consistency in documentation and collateral perfection. Among the improvements included: some partners had made suggested changes to their loan perfection, some partners had started documenting follow ups. Most important is that all businesses identified for visits existed and were found to be healthy.
The next spot checks will be conducted in 3-4 months.