MYC4 Reduces Staff Due to Lack of Capital

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Some employees have already decided to stay on board, just as the CEO and deputy CEO yesterday had their terminations withdrawn by the Board of Directors, which means that MYC4 will continue under the management of Mads Kjaer and Svend Toettrup.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.

Peer-to-Peer Lending Headline Potpourri

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.

MYC4 Moves Software Development from Uganda to Copenhagen

MYC4 has announced that the software development department of MYC4 will move form Kampala, Uganda to Copenhagen, Denmark where the MYC4 headquarter is located.

Quote from the announcement by CEO Mads Kjaer:

Dear Community,

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. …


MYC4 to Change Structure of Borrower’s Fees

MYC4 will change its fee structure for borrowers for new loans starting in July. One main point of criticism had been that MYC4 by charging origination fees profited from any loan, regardless whether it was paid back or defaulted.

MYC4 has reacted. In future there will be no origination fees and only fees on the interest of the repayments. This uis a step in the right direction as the interests of MYC4 are now more aligned with the interests of the lenders. To make or increase profit MYC4 has to avoid and decrease defaults.

Quote of the announcement:

We have made a strategic decision with regards to the way MYC4 earns money by removing “closing fees” and only charging “interest fees” on the loans, when they are being repaid. That means that we put ourselves on the same side as the Investors on MYC4 only earning money when the Borrowers repay their loans.

With this change we want to signal that we believe strongly in the viability of the Businesses, and to align MYC4 earning with the earning of the investors and similar to investors be affected by any defaults and currency fluctuation.

Concretely, MYC4 will change the current income structure, where the Borrower is charged a flat fee of 2% of the loan amount, payable only when the loan is actually disbursed, and an additional fee of 2% (interest spread) when the loan is repaid on the basis of a declining balance. This corresponds to a total fee to MYC4 of approx. 3 percent of the total loan amount.

Instead, we will charge 6% interest commission. Considering a 12-month loan time, this 6% charge matches the 2% on initial balance plus the 2% on outstanding balance fees. The change will in most cases be neutral for the borrower.

In the same line, MYC4 encourages our Partners to shift their income from closing fees to repayment (interest) fees to show their belief in the quality of their portfolio towards investors. However, our Partners are not obligated to change their income structure, so it is up to each of them if and when they will change due to for instance their cash-flow situation.