Outside Gatsby's head office in Kampala

Our largest provider, Gatsby Microfinance Ltd (GMFL) has signed a new risk share agreement with MYC4. This means that they are now covering 100 % on all their loans instead of 50 %. With the new agreement, GMFL joins our other active providers, Micro Africa Ltd, Tujijenge Tanzania, KEEF, Tujijenge Uganda, BELITA, and Premier Resource Consulting, who have already signed for 100 % coverage.

Risk share coverage entails that when a loan defaults on the platform, the provider has committed to cover a certain percentage of the outstanding principal out of a risk sharing fund. It is one of the parameters in MYC4′s star rating which you can read more about here: Risk Rating.

Why do you invest on MYC4 – what’s the first thing that comes to mind?

- I believe supporting small business can be much more effective in fighting poverty and creating sustainable development than injecting more aid. Small businesses have the potential to generate great efficiency gains in Africa while also boosting local employment considerably.

What’s the best and worst thing about MYC4?

- The thing I like best is the direct links that are created between individuals all over the world. Ten years ago, it would have seemed like science fiction if someone had told you that you can directly lend money through the internet to an African entrepreneur.

- The worst thing to me would actually be the name, because it has an unfortunate connotation in Belgium, where I’m from originally. ‘My C4’ refers to the document you receive from a company when you are fired… (who knew!)

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

- I would emphasize that great attention is paid to the ability to repay and that one is putting one’s savings to better use than putting them on a savings account because banks don’t serve this market segment and with current low interest rates across the developed world, the return will very likely be better than what you get on a savings account, without putting all eggs in one basket, since you can diversify your loan portfolio by country, by provider, by loan size, by business type, etc…

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

- Don’t leave your money idle on your account and make bids that are likely to be activated! Bidding at 50 % on a loan that needs an average of 12 % is simply equivalent to leaving your money idle on your account. It’s a waste of time.

What do you consider as competitors/alternatives to MYC4?

- Kiva is probably the most direct competitor of MYC4, but I have never used the platform before. It seems less business-oriented to me. Other alternatives would include donating money to about any NGO active in Africa, but I’m not always convinced that these NGOs actually make a difference. I think African entrepreneurs probably know best what they need money for, how to invest it as efficiently as possible, and how to improve their living standards through such investments. Loans through MYC4 give them full responsibility and accountability, which probably leads to the best results.

- NGOs often seem inefficient, with many resources going to operational costs, and often also ineffective, as they sometimes advocate certain solutions without thoroughly understanding the needs and daily reality of the people they are trying to help. Finally, aid always has had and always will have a potentially humiliating aspect and may create dependency rather empowerment.

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

- I think MYC4 has the potential to evolve into a global direct lending facility from anybody to anybody anywhere in the world. Of course, the current focus is on Africa, but the platform’s principles could equally be used for lending transactions between any individual and any business anywhere in the world, as long as a parallel ‘provider structure’ exists that can do the due diligence.

- I think the platform also has the potential to move into other areas beside business loans, namely equity stakes, personal investment loans and student loans.

I hope we can live up to those expectations in the future. Thank you Walter.

If anyone should be interested, I plan on doing more ‘investor testimonials’ , so if you want people to hear your story too, please get in touch with me at rasmus@myc4.com – more financial-oriented investors are also much welcome.

After recently reading Vibeke Quaade’s article on how the image of a “hopeless and helpless Africa” is frozen in time, we would like to demonstrate gratitude to MYC4 investors for seeing the value and transformative potential of social investment. Public opinion and promoters of poverty alleviation, Quaade agrees, should not lean towards current practices of depicting Africa as feeble and futile, but focus on building partnerships with proud entrepreneurs who want to change their situation and are working to improve their destinies.

The British report Finding Frames: New ways to engage the UK public in global poverty shows concern that British engagement in global development has decreased, linking this decline to the shape and entertainment angle that fundraising initiatives have taken. The report argues that these factors overshadow the underlying structural causes of poverty, conflict and refugee migration, and desensitizes the public towards fighting global poverty.

We are often told that conditions in Africa can only improve through our charitable contribution, which gives the impression that the problems in developing countries are something that can be fixed here and now, while also giving us a sense of conscientious accomplishment. Unfortunately, it also blocks a more nuanced picture of the world than that which is tied up around development work and the polar conception of ‘us versus them’ mentality. Through these images, the public becomes stuck in how it views global poverty.

The causes of poverty are seen as internal to poor countries: famine, war, natural disasters, bad governance, overpopulation and so on (Finding Frames).

Besides appearing in fundraising initiatives, Quaade comments, African topics are primarily limited to the news and are thus focused on conflicts and disasters. Otherwise, Africa-related topics are rarely addressed. A different picture is provided in international media (such as Al Jazeera, BBC World News and CNN), where developing countries are treated as part of the world. Here, there are accompanying facts about African growth potential, emerging markets, a growing middle class, entrepreneurship etc., instead of the persistent and outdated story of Africa as the hopeless continent.

Public perceptions have been stuck in this frame of mind and support for tackling poverty has mainly been understood as making donations to charities. There must be a shift in balance away from ‘transactions’ and towards ‘transformations’, the Finding Frames report argues. This means placing “less emphasis on ‘purchasing’ in simple campaigning actions and more emphasis on providing opportunities to engage increasingly deeply over time on a supporter journey”…a supporter journey such as MYC4 investors are embarking on perhaps?

For a previous MYC4 blog post on the paradoxical portrayal of the African continent, click here.

We will stay in dialogue with BIRIMA to get them to honour the guarantee which was made to MYC4 and investors in September 2009 that no loans would default on the platform.

First of all let me underline that the data within this blog post sets other factors as equal, and simply compare the registered primary industry with the risk of default seen retrospective (for 2010 in this example). In other words: this is very simple comparative statistics and therefore should not be used for substantial conclusions, but rather as a limited indication.

With that said, I want to present an overview of industries divided on statuses on the platform for 2010, as seen below:

As you can see, the industry of ‘Consumer Goods’ accounts for more than half of the number of loans (54 %), Durable Goods for around 15 %, and both ‘Farming & Fishing’ as well as ‘Catering & Food’ each around 5 %. As you have probably noticed by now, the defaulted number of loans within the different industries does vary. I’ll leave it to you to conclude whether this should affect your current lending considerations, and how.

I myself think that it’s interesting that ‘Transportation’ and ‘Personal Care’, two industries with more or less the same amount of loans and repaid loans vary from 0.00% to 13.16 % in defaulted as percentage of all loans. And also the two categories with around 50 total loans, ‘Catering and Food’ (1.89 % defaulted) compared to ‘Farming & Fishing’ (12.50 % defaulted) seems interesting.

You can study the table more thoroughly if you want to make your lending more industry-based. But please keep in mind, that even though it seems that e.g. ‘Finance’ has a high default rate, this number is based on a tiny number of loans, and is therefore inconclusive in every way.

I have chosen to look at 2010 due to the fact that it was a quite stable year, thus making it more reliable to compare the two factors alone. I’m leaving out 2011 simply because too many loans are still active (16 % repaid by the end of the year), which makes it a bit more inconclusive to say how many will eventually default. As you can see above, two thirds of the loans from 2010 have been repaid by now.

Please also note that the table includes the number of loans, not the total amounts, thus making it incomparable to the total defaulted percentage calculated on the amounts that you see on the quarterly reports.

I’m looking forward to see how these industry statistics look when all the 2010-loans are finished. Though I can’t stop wondering:

- How would these figures compare to businesses in developed economies?.. That could be interesting to compare.

The performance of the 2010 portfolio suggests that we can start to separate the two words and be cautious and optimistic instead of cautiously optimistic: Of the 1.8 million euro disbursed that year, more than 93 % has now been paid back to the investors, 4% is still paying back, and 3 % has been defaulted. See the chart below for a visual overview of the portfolio performance of MYC4′s current providers (click to enlarge).

Portfolio Performance (by loans disbursed each quarter) - Current Providers

In the last portfolio performance update we reported that while loans disbursed in the last two and a half years by our current providers continue to return more in interest than what is lost in defaults, currency losses were still affecting investors’ returns significantly. The net return before currency was then 3.5 % while the return after currency was -3.4 %. This picture has changed over the last quarter: the net return on the portfolio disbursed after Q2 2009 by our current providers is now 3.7 % before currency, and -0.6 % after currency. The chart below shows the profit and loss for each quarter (click to enlarge).

Profit & Loss (by loans disbursed each quarter) - Current Providers

It should be noted that a large portion of the currency gains come from the loan portfolio disbursed in the last two quarters of 2011 of which two thirds are still outstanding. It is therefore impossible to know at this point how the portfolio ultimately performs as it depends on the development of the African currencies relative to the euro. In terms of defaults, there are only 392 euro in net defaults from the 2011 portfolio so far (while 1.13 million euro has already been repaid).

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 (by loans disbursed each quarter) - All Providers

Finally, as we have been reporting in the last couple of performance updates, our key focus in 2011 was to reduce the portfolio at risk (PAR), i.e. the part of the outstanding portfolio that is more than 30 days late, from 15 % in the beginning of the year to below 5 % by the end of Q4. While the target was not quite reached, our Providers made a real effort throughout the year and ended with a PAR of 8.81% . We will continue our focus on risk in 2012.

APR in full refers to Annual Percentage Rate. It is one among many measures of the cost of a loan, which include interest rate, total cost of capital etc. APR is quite often confused with interest rate, or mistaken to be the same. The two are quite different. For example on this loan for Grace Waruguru Mwangi, the APR is 54.23%, but the interest rate is 33.83%.

APR as a measure of cost ideally takes into account all costs of a loan including interest, insurance fees, legal fees, processing/ closing fees, forced savings, and any other fees paid upfront on a loan: It then expresses all these costs as a single annual rate. The APR computation assumes that all these costs run across the life of the loan, and thus spreads the costs across the entire loan term (thus the longer the loan period, the lower the APR). In the absence of upfront fees, the APR value would equal the interest rate value.

APR’s usefulness is that it offers a level playing ground for comparing loan pricing by different players. It basically helps us compare apples to apples when it comes to pricing. Microfinance institutions, during product design and marketing, usually vary the various items of costs so as to appeal to a target market; emphasizing strongly on the item of cost that could interest the target borrower more. For example one MFI might offer a one year loan at 16% interest rate plus 3% processing fee; and another offers 18% interest rate plus 2% processing fee; APR will help evaluate which of the two is a cheaper loan. In this example, the loan with 18% interest is a cheaper/ better loan than the one with 16% as it has a lower APR.

Titus Kuria, MYC4's Credit Operations Manager, in a meeting

MYC4 endeavors to promote and ensure transparency in the cost of borrowing. The end beneficiary of transparency in costs is ultimately the borrower. On each loan on MYC4 in the “Costs for Business” segment, we give both APR and an indicative guideline of the total cost in absolute amounts that a borrower will pay. Many financial institutions have been known to lower their interest as a result of disclosure requirements. The financial industry has historically been held in suspicion by consumers due to the many hidden charges associated with their transactions. Many borrowers have suffered from costs that are revealed after signing the loan contract (essentially after buying the goods). To counteract this some countries have resorted to legislate how cost of borrowing is revealed to borrowers; established regimes such as those in the US, UK, Canada and the EU all use the APR measure. The use of APR in Africa is not widespread, but there is concerted effort to ensure its legislated use.

The APR levels on loans on MYC4 differ from loan to loan but vary within a reasonable range.  The APRs on MYC4 loans are very competitive in the microfinance industry across all countries we operate in. Ghana is currently the country with the highest APR on MYC4 platform; however, their APR is competitive in the Ghanaian market even compared to banks (who rely on cheap customer deposits to lend). We have numerous instances where borrowers prefer to wait longer (bidding period) for a MYC4 loan than get a provider’s other loan products immediately. MYC4 does not seek to undercut the markets on cost, but focuses on providing fair priced loans to marginalized segments and SMEs.

”I was staying at a working dairy farm 60 kilometers north of Bogotá, Colombia. I was fiddling around with my iPad when one of the kids that worked in the stables came up to me and started staring at it. He couldn’t have been more than 6 years old, and I’d bet dollars to donuts that he had never used a computer or even a cellular telephone before. Curious, I handed him the device and a very small miracle happened. He started using it. I mean, really using it. Almost instantly, he was sliding around, opening and closing applications, playing a pinball game I had downloaded. All without a single word of instruction from me. Think about this. Steve Jobs has designed a powerful computer that an illiterate 6-year-old can use without instruction. If that isn’t magical, I don’t know what is.”

It is not the age of the young boy that makes the small story interesting, but rather that the boy has never been using alike electronic devices and then just grasps the iPad and make it happen!

This make my head spin: where would Africa be today if Apple had entered the ICT4D arena, lets say a decade ago???

Andriod is already there as Lars Ivar Igesund commented on the Appfrica post. I have now looked more into this and I can only agree with Lars that Android has traction in Africa, but I don’t see that the Android platform has a significant impact on the masses in Africa. It is exactly amongst the masses that I imagine Apple would have had an impact and made the positive spiral spin… Noer’s example above is a good soft indicator of how Apple’s products are put to play immediately and everywhere!! To quote Jobs on this: “People, everywhere, want simple-to-use technologies that just work, regardless of who they are.”

I am not in doubt; if Apple had put focus on the developing world they would have made magic – some way or the other. Here is why (again with Jobs’ words): “Our job is to figure out what users are going to want before they do. People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.” This quote is fully aligned with one of my favorite two liners (with Vang’s words): “Poverty is not the problem, it is how we treat poverty that is the center of the problem.”

But it is not all milk and honey; the thing is Apple’s line of products, as they are designed today, hardly fits into the African market, as they are:

• expensive
• power hungry
• computer reliant (iTunes)
• a closed platform (which does not foster local innovation)

Now Jobs is not around any longer (RIP), it could be that Apple CEO; Tim Cook will look towards a market (1 billion people!) that is expanding like a forest fire day by day and should be profitable if the right BoP strategy is applied. I am in no way suggesting that Apple should follow a non-profit strategy, but ‘simply’ build a profitable business by shaping some products that addresses the above 4 bullet points (yes, even the fourth bullet point is now being loosened-up with the Apple and Adobe/Flash flirting that is going on).

As an interesting outro: It is well known that NOKIA is very interested in the African continent – and you might even argue that this is their last chance to survive as a mobile phone/platform producer? NOKIA will host a Developer Roundtable primo February in Nairobi, which I am quite sure other producers have done several times before, but to add vitality to the session, NOKIA CEO, Mr. Stephen Elop will participate in Kenya… I like this kind of commitment!!

MYC4 recently traveled to the 4^th Annual Forum of the United Nations Alliance of Civilizations (UNAOC) in Doha, Qatar together with MYC4 borrower Rose Nannyonjo. Rose  joined us to tell her own story and to support creative industries that empower women in Africa.

The UNAOC aims to improve understanding and cooperative relations among nations and peoples across cultures and religions. MYC4, Rose, and over 2,500 other attendees came together to tackle the issues of the missing link between culture and development, the notion of cultural diversity and the need for culture as a key element in development policies.

Rose is an entrepreneur by experience, diversifying after market demands. She began her entrepreneurial path by assisting her mother in poultry farming. After starting up her own small business, she incrementally grew operations, enabling her to expand the farm.

After my ordinary level education (1983), while still at my ancestral home before getting married, I helped my mother in her business of supplying poultry feed ingredients as well as poultry keeping. By the time she passed on (year 2000) I had learned a lot and picked interest. From a small scale business, I grew in operations from time to time. I expanded the poultry from home to another bigger place.

MYC4 CEO Mads Kjær together with Rose Nannyonjo in Doha

Rose is now servicing her second MYC4 loan, acquired to expand her new income-generating project rental housing. She has been able to diversify her business and keep up with the changes in demand. She employs 14 people on a permanent basis and more temporal workers in the tenant business.

I feel I have created a bond with GMFL and the MYC4 family, I have made business partners with them. The investors have been able to fund my projects so far with the two loans, and even the existing cordial relationship I have with MYC4 fraternity. As a woman, I feel more empowered as more assets/wealth have been created for my immediate family and posterity.

You can visit Rose’s profile on the MYC4 platform here and maybe help her grow her business by making a bid on her next loan?

Right now Micro Africa has six new Kenyan loans open for bidding – and from what we’ve heard many more should be on the way. For instance there’s 26-year-old Ann who runs a retail shop and hopes to hire an assistant once her business expands. And there’s 44-year-old Daniel Ngumba who’s looking to buy two more cows.

One of Daniel Ngumba's cows

The platform has been slow on Kenyan opportunities for the last six-eight months. In fact Micro Africa hasn’t uploaded loans from Kenya for almost 1 year. So why did they decide to come back to the MYC4 platform?

James Mugambi, Executive Director of Micro Africa, explains:

- We have resumed posting loans on the MYC4 platform following the stabilisation of the Kenya shilling currency against major international currencies because we have always believed that MYC4′s way of raising Loan Capital for MFIs is very efficient.

- We as Micro Africa Directors do not have to spend a lot time and resources fundraising for working capital of our operations but can now instead concentrate in lending and Product Development. Our experience in fundraising from banks and other international funders take average of 6-8 months before we conclude the transaction. So MYC4′s platform is always a great relieve when it comes to accessing funds for our clients.

Micro Africa is not the only provider who’s active in Kenya. KEEF joined the platform last week and has already uploaded more than 40 loans. Read more about KEEF in this blog post or on their new provider profile.