Total disbursement on the MYC4 platform made it past the 15.5 million euro mark today as 50-year-old Josephine from Kenya received a loan of 486 euro. The funds will be used to buy a dairy cow.

Josephine started dairy keeping back 22 years ago when her husband bought her the cows to make her be self employed and also at the same time supplement his incomes to be able to educate their 6 children.

All the best to Josephine and the other 1,774 MYC4 borrowers who are currently repaying their loans!

Pssst! Here is another number to celebrate: for the first time in a couple of years, the number of open loans on the platform is above 150.  There are now plenty of opportunities to choose from – the smallest loan today is for instance €146 to All Botique in Tanzania while the largest is €11,111 to Stephen Karanja in Kenya. Happy bidding!

At first glance his findings might leave the reader doubting whether microfinance matters at all. He concludes that the evidence for an impact of microcredit on poverty reduction is weak and he rejects most previous studies on the topic as unreliable and lacking reliable research methods. Furthermore, regarding the issue whether microcredit emancipates poor people, the evidence he finds is inconclusive. He instead argues for focusing on the offering of savings, insurances, and other financial services, but not on microcredit.

These were the points that have been highlighted in many reviews of the book, among these a review in TIME magazine entitled “Does Microfinance Work? A New Book Says No”. However, this title is misleading. Firstly, the book has had to withstand some heavy critique from a number of prominent researchers and practitioners within the microfinance field, such as Grameen Foundation CEO Alex Counts(read the review here), and founder and CEO of FINCA, Rupert Scofield(read the review here). The main criticisms voiced are that Roodman’s standards for what makes a reliable study are set too high as he ignores hundreds of qualitative and quantitative studies made simply by calling them unscientific. Furthermore, his high standard for what makes a good study leaves him with only four studies to examine, one of them conducted in Kenya with only 122 people. This is a weak basis for drawing conclusions regarding an industry of 150 million people. Add to this that of the four studies he does deem good enough, two are made of MFIs that does not apply best practice to their operations.

Secondly, the book does contain a number of points where Roodman himself admits the importance of microfinance. Especially on his third focus, the long-term industry-building capability of microfinance, he does believe in the positive impact of microfinance. Further, Roodman admits that reliable financial services are just as important for poor people in developing countries as for people in developed countries. He also finds some evidence of the ability of microfinance to empower women in respect to their role in their families. Finally, he does admit that: “the absence of proof is not the proof of absence”. Given the number and extent of the studies he actually does take into account in his conclusions, this point is important to keep in mind.

In the final sections of his book, Roodman makes a number of recommendations such as the promotion of microsavings, regulation and monitoring of the microfinance industry limiting the access to “easy” money, and promoting the use of information technology, such as mobile money.

Reflecting upon the book and its findings, it must be mentioned that there does not seem to be a clear distinction between microcredit and microfinance in Roodman’s book, the correlation he investigates is mainly focused on micocredit, while the book claims to be investigating all of microfinance. This distinction must always be made clear as many MFI’s of today offer a full range of services, not one or the other, and any study of the impact of microfinance needs to take this into account.

It is obvious for us at MYC4 that access to finance is a cornerstone in the development of any economy. One need only to imagine how life in developed countries would be if banks suddenly chose to stop offering loans to individuals and businesses. But it is crucial to remember that microfinance is not charity, and should not be. The loans and services offered need to be fair and sustainable, and the process of giving them needs to be supervised. We believe that the way we do business at MYC4 truly fulfills these conditions. It should be mentioned that a majority of our African partners not only focuses on microcredit.

For example, one of our most recent partners, KEEF in Kenya, offers their clients a number of services, such as savings and insurances, all of which contributes to improve the financial infrastructure for many poor people in rural areas (see example in the screenshot above).  We also believe and promote the use of new technologies to make this process easier and to include even more people financially in the global economy. However, as in any situation it is important to be self-reflective and constantly question ourselves and the way we do things. This is the only way to improve and to ensure that our work truly contributes to making this world a better place.

Last month, a new media opened in Denmark which focuses entirely on Africa. It goes by the name Afrikablog.dk and it is created to introduce a more nuanced picture of Africa to the Danish public.

Afrikablog.dk is an independent and critical media run by volunteer editors, writers, photographers and researchers that tell stories of sub-Saharan Africa. The website has a News section with self-produced journalistic articles with insight into a diverse and vibrant Africa, and – in addition to the coverage of “usual topics” such as  war, conflict and famine – Afrikablog.dk also focuses on culture, business, development and daily life in African nations. MYC4 has been asked to contribute in the Business section.

To read more about Afrikablog.dk, please visit their website. To read the first blog post from MYC4, click on the picture below.

Here are a couple of other interesting blogs which also present a different perspective on Africa:

• Africa is a Country - The media blog that is not about famine, Bono, or Barack Obama.
• See Africa Differently – We’re all about telling a different story about Africa, sharing the under-reported positive side that you rarely see.
• How We Made It In Africa – Insight into Business in Africa.
• Richard Stupart on Matador Network - Richard Stupart lives and works in South Africa, exploring as often as possible the strange and unknown places that his continent is so rich in.

We have today made a couple of minor improvements to the MYC4 platform.

The biggest change for investors is related to the Final Call on fully funded (or green) loans: instead of staying open for bidding for an additional 24 hours, these loans will now close after 1 hour. The change has been made to ensure that available funds are directed to loans which are yet to be funded, and to improve the turnaround time on the platform. It is important to note that only loans which are closed manually by the providers are affected by this change, i.e. loans closed before the initially specified closing date. All other loans will still be on final call for 24 hours.

Other changes related to investors:

• Link to the MYC4 Forum has been inserted next to the link to the Blog
• The default view of loans has been changed to only show key information. All other information can still be found by expanding the headings.
• Bug in sending automatic emails has been fixed and the service improved.

Should you notice any irregularities on the site, do let us know at info@myc4.com.

Daniel Kimani is out of a family of nine, they were dirt poor. When Daniel was nine his father died, but Daniel was old enough to realize that the family was in deep trouble and what that meant to his mother and siblings. And he made a pledge: He would change that, he would some day see his mother in a decent house, not the wooden shed they were living in.

-I wanted to pull my mother out of trouble, and I knew that the way out was education, so I studied hard in school, and I continued to high school. This is where the bucket of cold water comes in. With only the light from some kerosene soaked cloth stuck in a can and with my legs in the cold water I studied at night. The water was necessary to stay awake and not be tempted by the warmth of the bed, Daniel says.

He made his way through university. But on graduation day he was in the town of Eldoret, far away from the university.

- My mother asked me: I have 4000 Shillings, should we spend them on a trip to your graduation? The answer was easy, of course we shouldn’t. So I did not attend my own graduation. And soon after, my mother asked me to leave and make it for myself. So I walked away from my mother with two blankets, one pair of pants, one shirt and 2000 Shillings.

His mother is still alive, 80 years old. And please take a look at the photo. The house is there, it stands as a very concrete monument over Daniels’ determination to change things. And there’s also a shed. Not just any shed but the very one in which Daniel grew up.

Daniel Kimani has not only changed his own and his mothers’ lives. He has changed the lives of many through his work with KEEF.

- If I can help a little Daniel somewhere then my day is made, he says.

- First of all, I believe the MYC4-concept is fair. It’s generally a contribution to Africa. I like it personally, because it’s more than just giving away your money to a charity. Everyone can join. It’s smart. It’s a possibility for African entrepreneurs to apply for a loan on reasonable conditions. Also, trade generally creates better relations and makes us more connected to each other across borders.

Peter on borrower visit in Uganda

- The best thing about MYC4 is the direct link between investor and borrower, I’ve not come upon that anywhere else. I think it’s a shame though that this connection isn’t always being exercised. For instance if a big loan defaults, I often miss some more communication from the provider, specifically as to why the loan defaulted. That could be practised a lot better I think.

- An aspect about MYC4 that I think could be better as well, is that many of the technical features on the MYC4-platform are difficult to understand if you’re a ‘simple investor’, one who does not necessarily have a great knowledge of finance and economics. The instalment plan for instance, and the financial terminology such as ‘awaiting feedback’, what does that mean? Sometimes less is more. Too many details often takes the focus away from what’s essential.

I can only agree with Peter on that observation, though emphasizing that there is a fine line between information-density and transparency – one of MYC4′s key priorities. The amount of information might seem confusing to some, but at the same time it’s essential to others.

Peter on another visit

- The original idea about MYC4 being a platform where a lot of private investors throw in a small amount seems to have difficulty gaining a foothold. In the start I thought I should just tell about the concept to ten of my friends, let them tell about it to ten of their friends, and so on, and the viral marketing would be all that was needed to find capital. But now I believe more in the bigger investors. For it to work with a lot of small-scale investors I think MYC4 should be established as a concept where you at least get your money back, and it should be consolidated according to currency loss.

Currency risk remains on investors for now, but at least our intense work on risk share agreements has lowered the investors’ risk.

Thank you to Peter for his inputs and opinions. And remember, I’m still only a click away if you want your story told: rasmus@myc4.com. Or you can engage on our new  forum as well.

It is truly a complex area they are deciding upon over there now, but let me give you a glance of what I have picked up the last couple of weeks (I am only focusing on the crowdfunding part in the JOBS Act which, in total, is a small businesses reform package);

The JOBS Act is a law that embraces crowd funding by reducing many of the regulatory barriers, federal restrictions and red tape that currently functions as a nightmare for American start-ups wanting to raise capital from investors. The aim with JOBS Act is simply to create a meaningful way for start-ups to raise funding to develop, create jobs,… jumpstart growth!

The law requires start-ups seeking funding to provide information such as business plans, financial status, and shareholder risks. Basically the Act is structured as follows:

• Start-ups seeking up to $100,000 must provide tax returns and a financial statement certified by a company principal.
• Between $100,000 and $500,000 start-ups must obtain independent accounts to review these statements.
• Amounts exceeding $500,000, requires audited financial statements.

The maximum a start-up will be able to raise is $1 million per year and it must be via an SEC-registered crowd funding portal. I fancy the stair case model they have chosen; the higher the amount the more information/security the entrepreneur must put forward to the investors in order to make their decision.

On the other side of the model, now every American, regardless of income level, is able to get in on the ground floor of a great business idea by pitching in a small amount (it might be that the JOBS Act now is a reality, due to resemblance with the way political campaigns raise money?).

This is MASSIVE news not least for America, but I also strongly predict that this is a tipping point for the P2P sector in general as many (online) ventures and structures has its hearth in the U.S. In fact I believe this will impact the traditional bank sector… ooooh!

The U.S. has one of the worlds most regulated bank sectors and seen from my perspective the Act is an important indicator in a must-take-place development I have chosen to name: “Bye Bye Banks. Hello Banking!!” – or as Bill Gates puts it: ”Banking is necessary, banks are not”.

Banking is fundamental in developing society in general. Period. If banks do not wake up and smell the sunshine, it might be over sooner than later. I know I am dancing with the giants with my bold statement here, but banks must reinvent themselves and be more congruent with the time that they regulate instead of fighting development.

Banking services are not being developed from within banks, but by businesses outside of this sphere, often with the ’garage’ approach (lean, no legacy, digital savvy, etc.), and they are introducing services with a blazing speed. Take the American company; Square as just one garage business supporting this point. Take a look at their impressive numbers: Processing $5B In Payments Per Year; Volume Up 25 Percent Since March.

Yes, I would be rather scared if I was a bank (with a ‘glass and steel tower cost structure’, a whole lot of legacy, so-so digital savvy, etc.)!! I mean, banks where I come from believe that it is good enough just bringing an iPad version of their online bank to the market or it is good enough just to engage customers in idea generation via Facebook – sorry, but in my outlook they simply do not capture the essence of the situation they are facing and simply just continue the path they have done for decades!

But are banks doomed then? No! I actually think Sir Richard Branson is a good example of how it can be done in a complete different manner. Besides being an investor in Square – clever move – it is going to be very interesting to follow how he will transform his acquisition of Northern Rock and how he will navigate in a regulated, financial world as mentioned in my Philanthrocapitalism post here.

Also, how liberalization of the P2P sector will affect funding and growth of African businesses (and in the developing world in general) is going to be very interesting to follow…

According to a CNN interview with International Monetary Fund (IMF) chief Christine Lagarde, a major re-engineering is currently taking place between the developed and developing world economies. A number of African countries have enjoyed higher growth rates than Europe and the United States in recent times, as many western nations remain mired in financial turmoil.

Emerging markets are playing a role that is much bigger, much more important in terms of leadership than they did, say, 10, 15 years ago. Christine Lagarde, IMF Chief

We are currently undergoing a re-organization, which is good in the main, because there were massive imbalances and those imbalances are unbeneficial for the global economy, she explains.

The African continent in and of itself has had a growth rate that was significantly higher than the EU and US, in the range of 6% lately. It holds significant commodities that are so needed for the growth of other countries. Trade with China, she uses as an example, which is dependent on raw materials for its own development, has created alternative sources of growth that differ from the traditional trade links with Europe. These are new opportunities for African countries to develop and strengthen.

However, youth unemployment is one of the biggest challenges facing Africa’s countries, she argues, and Africa’s growing economies should put job creation at the heart of their development policies.

There is a vibrant youth that is expecting the leadership of those countries to open the economy so that they can actually express their talent and find ways to get integrated in the job market.

From both a business and developmental point of view, linkage between emerging markets and a young and able workforce should be emphasized in focus and coverage so that the African economy can change with the tide and benefit the global economy.

This linkage is precisely the core focus of MYC4. Economic and social development through job creation is the path we have taken. Here, business and investment is utilized in order to reach remote areas and help entrepreneurs expand their small and medium sized businesses. By expansion through capital investment, entrepreneurs are able to hire more employees. MYC4 believes that this expansion will lead to job creation and, therethrough, social and economic development in rural areas, and eventually, on a larger scale, in Africa as a whole.

MYC4 Africa Director, Eric Naivasha, and a provider signing risk share contract

To ensure that providers consistently have funds to pay the loans as they default, MYC4 requires that they set aside some funds, equivalent of 20% of the loan balance. The percentage of funds set aside is ideally meant to be equivalent to the default risk of an institution. The industry standard for default risk is about 2%; thus MYC4 takes a prudent approach to this by requiring a wider safety net. Providers have several options for providing for the 20% including bank accounts controlled jointly with MYC4, bank guarantees, escrow accounts in favor of MYC4, government paper and other financial instruments that MYC4 can legally place a lien on.

The risk share fund was introduced to align practices on MYC4 with best practice in finance. The belying factor is that when microfinance institutions (MFIs) borrow funds from any lender, they are required to pay back 100% of the loan plus interest at determined periodic intervals, regardless of whether the borrowers pay or not (on MYC4 they are only required to remit repayments that they receive from borrowers). On this understanding MYC4 now requires that the MFIs provide 100% risk share (Definitely now it is time to change the name from risk share to risk guarantee: However, this is debatable as the MFIs only guarantee default risk while the investors bear all currency risk).

Example of Star Rating as it appears on the MYC4 platform

The risk share agreement feeds into the risk score of the providers, commonly referred to as the star rating on MYC4. The star rating is a range of 0 to 5 with 5 stars being the best performance. The percentage covered per loan (currently set as 100% for all providers) and the percentage of outstanding portfolio covered by risk share fund (currently set as 20% for most providers) are two of three factors under the “will” category of the risk rating. The other factor under will category is the ratio of repayment fees over closing fees: partners that earn the higher percentage of their fees from collections/ repayments are deemed to have more will to manage risk than those that earn more from closing/ processing fee.

The other category in the star rating is referred to as “skill” and it captures performance related parameters. This category contains some parameters that are updated on a daily basis by the system automatically. These include PAR31+, Change in PAR31+ in last 6 months, worst PAR31+ in last 12 months, default rate and sum of repayments over total disbursed. Other parameters in the category skill are updated periodically as reviews are conducted. These include spot check score (every 6 months), annual review/ due diligence, and external rating for the last 12 months.

To read more about Risk Sharing follow this link. To read more about MYC4′s most recent spot checks, click here.

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

The quality of the portfolio disbursed by current providers after Q2 2009 continues to be good. So far, more than 73 % of 5.42 million has been fully repaid to investors while around 2 % has defaulted. The graph above shows the current performance of this portfolio (i.e. repaid, on time, late more than 30 days, defaulted) divided by quarter disbursed. The first quarter of 2012 ended with a portfolio at risk (PAR) above 30 days of 5 % which is the best result since late 2008 and our target in terms of quality.

With regards to the profit and loss, there have also been significant positive developments over the last three months. The East African currencies, especially the Kenyan and Ugandan shilling, seem to have stabilised, and MYC4 investors have in this process received net currency gains of 30,000 euro on loans disbursed in the second half of 2011 – thereby balancing out some of the losses from the first six months of last year. The net return for investors on loans disbursed by our current providers after Q2 2009 is now 3.5 % before currency and -0.1 % 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

Kindly note that the performance of the 2008/2009 portfolio has been analysed in detail in previous portfolio performance posts, see e.g Portfolio Performance 2010 and Portfolio Performance 2011: Q1, Q2, Q3, Q4.