Another quarter has gone by so here is an updated report on the performance of the MYC4 portfolio (to read the previous performance post go to Portfolio Performance 1st Quarter 2012).
Total disbursement this quarter amounted to 801,850 euro which is the highest volume in more than 2.5 years and a growth of 10.5 % compared to the previous quarter. A total of 949 loans were disbursed. This was also the quarter where investors could choose from 200 open loans on the platform at the same time and where Yehu Microfinance Trust joined as a new MYC4 provider.
Portfolio Performance (by loans disbursed each quarter) – Current Providers
The good performance of the portfolio has continued: net defaults on loans disbursed in the last three years by the current providers* are kept at 2 % with around 75 % of this portfolio repaid to investors. When looking at loans disbursed in the last one year only, defaults are less than 0.15 % (3,029 euro) with around 41 % (1,072,919 euro) of the total portfolio repaid so far. These defaults are all from Growth Africa who is no longer an active provider.
Historical MYC4 PAR (click to enlarge)
The portfolio at risk (i.e. the outstanding balance on loans late by more than 30 days relative to the total outstanding loan balance) was 3.6 % at the end of the second quarter. This is an improvement from last quarter’s 5 % and it is now our best result since late 2008.
With defaults kept at an absolute minimum, the key factor determining investor returns is currency. Here it is positive to note that the East African currencies have remained fairly stable this year, especially in comparison with last year’s excessive fluctuations, and the currency losses realised on loans disbursed in the first quarter have so far been sufficiently covered by earned interest while loans from the second half of 2011 have brought large currency gains (see graph below). This is reflected in the net return: while it was -0.1 % after currency in the first quarter, the net return on loans disbursed after Q2 2009 by the current providers is at this point 1.2 % after currency. Investors’ return before currency has also improved, albeit modestly, from 3.5 % in Q1 to 3.6 % in Q2.
Profit & Loss (by loans disbursed each quarter) – Current Providers
The key challenge for the coming quarter is to continue the positive trend in terms of portfolio growth and quality. The current MYC4 providers have proven that the quality is there and that they also have the will to give investors a real opportunity to obtain a positive return (all MYC4 Providers have agreed to 100 % risk guarantees). With four new providers joining the platform in the last 10 months (Tujijenge Uganda, BELITA, KEEF, and Yehu Microfinance Trust) there is now a good scope for portfolio growth in terms of loan production.
Historical MYC4 OLB (click to enlarge)
On the investor side, more capital is needed on the platform to satisfy the demand for funding – in the second quarter alone, loans of more than 250,000 euro were cancelled in the bidding process due to lack of financing. Existing investors have nevertheless plenty of reason to be pleased with their efforts so far in 2012: the outstanding loan portfolio has grown from 1.2 million euro at the start of the year to 1.6 million at the end of this quarter. We hope to see this level of growth continue in Q3.
If you are yet to read about our quest to find more liquidity for the MYC4 platform, make sure to click here. If you want to read more about the 2007-2009 portfolio, go to one of our previous performance posts, e.g. Portfolio Performance 2010.
* Current Providers: GrowthAfrica, Gatsby Microfinance Ltd, Micro Africa Ltd, Premier Resource Consulting, Tujijenge Tanzania, Fusion Capital Ltd, Makao Mashinani Ltd, Tujijenge Uganda, BELITA, KEEF, and Yehu Microfinance Trust.
This has been a rewarding 2nd Quarter to us, having managed to have two new providers on board.
Very positive to see that MyC4 continues to keep defaults and PAR under control (though it may seem less important with the now current 100% risk guarantees).
Good to see that the disbursed amount keeps growing – and that we investors actually make a (small) profit.
Not so good to see that the amount of cancelled loans has grown considerably – both loans that go unfunded and loans that do not obtain the wanted rate (though in some sence it is nice to see that Africans have more ideas than we investors have capital).
Since it is mostly (as far as I have seen) larger loans that gets cancelled, it might suggest that the “problem” is the bigger, for-profit investors. Small loans will be funded and obtain the wanted rate with the bids from for-charity investors, whereas larger loans require bids from the bigger for-profit investors – and apparently they don’t find the return attractive. Maybe MyC4 – now that they have the quality of the portfolio under control – could look into “fine-tuning” the transfer chain from investor to borrower and back to investor? Even a couple of percent less “waste” here would more than double the investor return.
—lars
Thanks for your comments, Lars. I agree that we are now at a point where fine tuning of the model is relevant again. We are also still working on attracting the bigger investors, but these things unfortunately tend to take time.
Githa
Amazing blog Githa. Very good work.
Thanks, Christian. Hope things are progressing well with you guys.
Githa
Would you please explain the “Portfolio Performance” diagram. I do not really understand the difference between “paid” an “ontime”/”late”?
Hi Morten,
The diagram shows the amounts disbursed per quarter and the current status of those funds with “paid” meaning that the funds have been repaid to investors; “ontime” meaning that the funds are outstanding but on schedule with the repayments; “late” meaning that the funds are outstanding and behind with the repayments by more than 30 days; and “defaulted” meaning that the funds have been defaulted and are yet to be recovered.
I hope this makes sense. If not, feel free to write again.
Githa
Thank you, Githa. That was what I needed to understand it. I just needed some few words to describe the single words used in the diagram.
Morten, Good to hear. I’ll remember to incorporate a few more words in my next post.
Githa,
this really looks good, congratulations!
Looks like MyC4 is on a good way!
Joerg
Cheers, Joerg. Yes, I do hope this marks the turning point for us. Good to know you’re still checking in on us from time to time.
Githa
Great to see MyC4 coming back on track. I’ve already been noticing it in my own portfolio which shows positive results in the first half of 2012. Keep up the good work and I hope we´ll be able to welcome some bigger investors aboard in the 3th or 4th quarter to get the number of cancelled loans down.
Dear Githa,
First of all I would like to compliment you with the new and improved balance sheet information of MyC4 (launched September). I saw that I had a small default on a Gatsby loan. But isn’t Gatsby covering the default risk on the loan portfolio? So why do I have a defaulted loan when Gatsby is covering that risk?
Otherwise: my portfolio is doing fine the last year!
kind regards,
Jaap
Dear Jaap,
Thanks for the feedback. Much appreciated!
It is correct that Gatsby, like the other active partners, cover the default risk on their loans, however they are only required to pay it out after the loan has been defaulted on MYC4. This can take up to 30 days. We believe it is important to show the credit history on MYC4 in order to be as transparent as possible. You will therefore see loans default on the platform and subsequently be recovered/covered by the partner in question.
Regards,
Githa
[...] loans disbursed after Q2 2009 by the current providers* improved to 1.9 % after currency (up from 1.2 % in Q2 and -0.1% in Q1). Investors’ net result before currency also improved from 3.6% in Q2 to 3.9% [...]
[...] years. This is a small decline from the previous quarter’s 1.9 %, yet it is still up from 1.2 % in Q2 and -0,1 % in Q1. As a new key indicator, we have calculated the Return on Investment (RoI) for [...]