Like several other internet companies MYC4 was hard-hit by the outage of Amazon’s Data Center in Ireland. Days later the MYC4 site is still down with only the blog (which resides on WordPress) functional.
P2P microfinance platform MYC4 has closed its discussion forum. Links to the forum have been removed from main navigation.
The official explanation on the blog says: “The forum was originally created to ignite a dialog among the investors. We haven’t seen all that many sparks recently. Most of the posts on the forum in the last year have been either investors asking specific questions to MYC4 or MYC4 communicating news to the investors. Not much dialog.
We decided to try something different, so we created a blog.
… You can still write questions to the Partners on the forum. But the other topics have been frozen. You can find all the old posts there, but you can’t write any new ones.”
It seems weird to argue that a forum is replaced by a blog because a forum is not fit for dialog. My impression is that the MYC4 forum had 3 aspects which can have caused the removal:
- Lenders pinpointed things that were not working properly on MYC4 (e.g. default levels, certain processes, provider quality). They kept track on the results following up earlier announcements of MYC4 on measures taken.
- In many cases answers by MYC4 did not satisfy the persons asking. This negative customer experience became publicly visible through the forums, possibly deterring new lenders.
- Possibly answering questions in the forums tied up to much staff time (but I would expect that the same questions are now send via email, therefore closing the forums does not change this issue)
So I do feel that MYC4, a company that at it’s launch trumpeted utmost transparency goals, chickened out. They no longer want to discuss and face customer demands and criticism in public, but rather elected to replace it with a blog, which is much more a one-way-communication channel.
Everyone is invited to continue the discussion on the MYC4 forum here on Wiseclerk.com.
Is there enough space for all of us and just how easy is it to set up shop?
In a span of just under 3 years, 3 new micro credit platforms have taken shape in the European micro lending P2P context: MyC4, Babyloan and the soon to be launched myAzimia.org (Azimia means to borrow and lend in swahili). These platforms are all aligned to a specific domestic market thanks to the way such businesses are regulated in Europe ; Myc4 is based in Denmark, Babyloan in France and myAzimia in the UK.
These are platforms all with varying business and revenue models but all with one key objective; to channel the capital of private and institutional investors in Europe to small businesses based in a emerging economies in sub saharan Africa and Asia. In achieving this objective, these young businesses get a life line of capital that they badly need, finally get an opportunity to enter the formal financial sector and the economic and social fabric of the countries that they operate in are significantly improved and ultimately the quality of life of these individuals is upgraded. I don’t need to to reinvent the wheel here, we all know about the fantastic tool that microfinance can be in helping to alleviate poverty and helping to improve lives, but the innovative element of these platforms takes microfinance as a financial tool to a new level as it uses the internet as a linkage between the entrepreneurs in developing economies and social investors in Europe.
As I mentioned already the business models of these platforms are all different, and one platform in particular has suffered significant reputational damage within the last 6 months as a result of selecting MFI partner institutions in Africa, that for one reason or another, turned out completely unable to deliver what they had promised. This is a challenge that any platform of this nature faces, the questions that need to be thoroughly explored before selecting partner institutions responsible for loan selection and assessment are:
1. who are the partners in the developing country?
2. Are they regulated locally?
3. Do they understand our process?
4.Do they already have a quality loan book?
5.Do they have high standards in their credit approval procedure?
6. Do they understand the local market and how it operates?
7. Do they have a good track record?
The identification and marketing to social investors is also an important aspect but to my mind has been highly overrated by some commentators. My motto is, get the right partners to work with, understand the market that you plan to disburse loans in and everything else will follow. Continue reading
In a telephone call MYC4 executive Jes Colding yesterday gave P2P-Banking.com a preview of the future positioning of MYC4. The two main goals are risk mitigation and new provider structure.
All new providers will have to take a direct stake in the loans they provide. They will have to guarantee 20% of the outstanding portfolio. The guarantee can either be provided by a bank deposit or by a bank guarantee. Loans from an already active partner on the MYC4 market place, Fusion Capital, are already covered by a 15% guarantee.
The agreements with new partners will also adapt a new fee structure. While in the past as much as 2/3 of the provider fees were deducted from the loan upon disbursement, in the future a minimum of 75% of the fee will be payable as the loan repays. Limiting fees payable on disbursement to a maximum of 25% of the total fees will align the interest of the providers with the interest of the investors, says Colding.
MYC4 will also shift towards a new kind of partners. The reasoning is that microfinance partners, which MYC4 solely worked with in the past, sometimes have cheaper access to capital already and cannot reach the 3 loan segments MYC4 wants to target in the future: SME, rural and youth.
SME (small and medium size enterprises)
To fund SME loans MYC4 aims to partner with consulting and private equity companies that already work with these clients. Colding cited Fusion Capital as an example.
Here MYC4 will have supply chain partners and outgrower schemes. Colding gave two interesting examples for the supply chain model. A large Danish supermarket chain wants to increase the amount of African produce on offer. The loans will be used to enable the farmers to upscale their production. And most interesting: Colding says MYC4 will be advertised on the products (e.g. bags of frozen peas) as well as in the supermarket. A solar system company wants to sell more solar power systems in Kenya. Here MYC4 loans will allow groups of people to buy a system, the manufacturer is paid upon delivery and the group repays MYC4 investors over the loan term. While these are not business but consumption loans, Colding says MYC4 will allow them because of their social and environmental impacts. A third example, which is already available to invest in on the MYC4 market place is loans to Armajaro farm shops in Ghana, which have been fully underwritten by Armajaro, one of the world’s largest cocoa bean wholesaler.
65% of the population in Sub-Saharan Africa are under the age of 25. Many are well educated but have slim employment chances, leaving starting a business as only option. High risk normally makes funding unavailable to them. Funding via MYC4 investors would not be sustainable for the same reason. Therefore MYC4 partners with the International Labour Organisation (ILO), Geneva. The ILO and the provider partners will underwrite up to 90 percent of the risk.
As reported in the past MYC4.com has serious operational problems making it an investment with negative ROI for the vast majority of lenders. MYC4 has taken measures to recover as much of the outstanding loan amounts as possible, but progress is very slow.
This is a quick update on the situation
Kenya / Provider Ebony:
The receivership has been in place for two months now, but has recovered only a small amount. The court case against Ebony Capital Ltd. is ongoing still awaiting a ruling. (see details)
Ivory Coast / Former providers Ivoire Credit and Notre Nation
The responsibility for collecting these loans has been turned over to TRIUM International in September 2009. In the 5 months since then TRIUM International collected 17,848 Euro. TRIUM has asked to be relieved of the contract as soon as possible (see details)
Senegal / Provider Birima
Repayments have been delayed. Birima cites technical problems and a bad economic situation in Senegal.
Uganda / Provider FED/CMC
FED seems to have the worst status. MYC4 reports that collections nearly stopped due to a lack of staff and working capital. Borrowers are said towithhold repayments in speculation on a collapse of FED/CMC.
MYC4 has defined 10 action steps for March and April. (see details)
In January I published my predictions for p2p lending trends in 2009. Now let’s see how good my crystal ball was. The black text is my original prediction, with the review added in green and yellow.
More competition and entering more national markets (probability 100%)
In many markets multiple p2p lending services will compete for the attention of lenders and borrowers. In other markets, where there is no national p2p lending service active yet (e.g. Canada, New Zealand), p2p lending will be introduced by the launch of a service. Possible candidates include Communitylend and Nexx.
It is hard to predict when the dormant US players (e.g. Prosper, Loanio) will overcome the regulatory hurdles and if that step is lasting.
The British market which has (compared to other markets) rather low regulatory barriers so far is dominated by a single player – Zopa. I wonder if we’ll see the launch of a competitor there.
Multiple new services launched in 2009, e.g. Aqush in Japan, Sobralaen in Estonia, Uppspretta in Iceland as well as ill-fated Pertuity Direct in the US. Prosper reopened. The mentioned Communitylend and Nexx did not make it so far, though it looks like Communitylend missed a launch in 2009 only by weeks. No competition in Britain for Zopa yet.
Boom of social lending services/p2p microfinance (probability 100%)
2008 saw the launch of Babyloan, Veecus and Wokai. Kiva funded more the 1 million US$ new loans in a single week in the end of December. The steep growth of Kiva, MyC4 and other services will continue and new p2p microfinance platforms will launch.
MYC4 has redefined it’s strategy and budget plans after it was unable to attract new funding from business angels as originally planned. Mads Kjaer, CEO and main shareholder has announced that he will invest 1.4 million Euro (approx. 2.1M US$) into the company in 2010. To reduces costs MYC4’s management has decided to conduct a collective termination of all employees’ contracts on Monday November 30 in order to renegotiate employment with all employees and give them the possibility of deciding what to do in the current situation with a three-month notice period.
Some employees have already decided to stay on board, just as the CEO and deputy CEO yesterday had their terminations withdrawn by the Board of Directors, which means that MYC4 will continue under the management of Mads Kjaer and Svend Toettrup.
For MYC4 2009 was an extremely difficult year as default rates of the loans of nearly all local providers peaked. Volume of new loans slowed to about a quarter of the high reached in mid-2008 as several providers were paused to evaluate/clear the situation.
The conflict with Ebony Capital Ltd., a provider in Kenya, reached new extremes. The legal battle led to a search of Ebony’s premises by the Criminal Investigation Department, Nairobi on Dec. 1st.
Furthermore MYC4 placed information adverts in a regional newspaper to encourage borrowers to make repayments on their loans directly to a MYC4 account instead to Ebony Capital Ltd. (picture of newspaper ad).
MYC4 even set up an information page directed at Ebony borrowers and linked it on its home page.
Given the circumstances 2010 will not be an easy year for MYC4, too.
Deutsche Bank Research released a new e-banking snapshot focusing on p2p lending. Notable trend is a shift to automated bidding (vs. manual selection of single loans). Interesting results are the findings that loans with longer loan descriptions have a higher default risk (at Lending Club) and that lower cost are not the only motivation for borrowers to use p2p lending services (offers by banks might actually be cheaper).
MYC4 is still struggling with the situation of it’s local provider Ebony in Kenia. After some issues raised questions, MYC4 attempted to investigate Ebony’s portfolio. However when MYC4 attempted to perform an announced audit at Ebony’s premises in Nakuru accompanied by 4 auditors of KPMG, they were denied access. MYC4 filed an application in court in order to get access to the files. However on October 30th the court postponed the case until December.
Kiva had paused Ebony last year after unsatisfactory results and defaulted all Ebony loans last month.
In Germany p2p lending usually received positive to enthusiastic press coverage in the past. Today’s article in Handelsblatt (a financial newspaper) online edition has a more critical tone, pointing at fee structures of one service and wondering why the German Bafin (the regulation authority) sees no need to monitor activities of p2p lending companies more closely. The article does also cite positive recommendations of consumer advocates for Smava.
The New York Times picks up the story of an earlier blog post by David Rodman (‘Kiva is not quite what it seems‘) that started a discussion on transparency and marketing messages of Kiva around the question if Kiva lenders are really aware that they do not lend to the entrepreneur pictured but rather to the MFI which may/will use the money to fund other loans.
Since the blog post Kiva has changed it’s tagline on the homepage from “Kiva lets you lend to a specific entrepreneur, empowering them to lift themselves out of poverty.” to “Kiva connects people through lending to alleviate poverty.“
Quote from the announcement by CEO Mads Kjaer:
After long and careful consideration, MYC4 has decided to move the software development department from Kampala, Uganda, to the Copenhagen office. The decision is made in close connection with MYC4’s strategic focus on streamlining the organization by focusing all efforts on (a) building a solid and scalable IT platform, (b) creating a strong basis for growth in Africa, and (c) improving the capacity and quality with MYC4’s current Partners.
There are two crucial reasons behind this decision:
Creating an effective cooperation between Copenhagen and Kampala has proven too complex. The Development Team in Kampala is strong and hardworking, but the current setup does not allow us the close dialog, sharing of ideas, productivity and flexibility that we require. To give an example of the challenges – the internet connection to the Kampala office, which we share with another company, is one of the best available, yet it is only 750 Kbits/second and is expensive (30,000 DKK/month).
The overhead costs are too high. Especially “hidden costs” for travel, slower development, waiting time and rework due to difficulties in communication.
Initially we saw a lot of benefits from having the software development team located in Africa. However, after having kept trying to improve to set up and make development run flexibly, we must face the fact that the setup is too complex to meet the demands and goals for MYC4’s development. Therefore, over a transition period of 2 months, the Kampala Office will be closed and a software development department established in Copenhagen.
Despite the fact that this is a difficult situation with personal as well as practical consequences, we are confident that it is the only thing to do in order to meet MYC4’s mission and vision and ensure the long term quality and scalability of the platform. …
At MYC4 it is somewhat awkward for lenders to keep track of their portfolio. Some lenders keep track manually in Excel lists of their loans.
(Image by Bente Pederen, used with permission)